Transport Committee - Minutes of EvidenceHC 1694

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Oral Evidence

Taken before the Transport Committee

on Tuesday 6 December 2011

Members present:

Mrs Louise Ellman (Chair)

Steve Baker

Julie Hilling

Mr John Leech

Paul Maynard

Iain Stewart

Julian Sturdy

________________

Examination of Witnesses

Witnesses: Robert Siddall, Policy Director, Airport Operators Association, Emma Gilthorpe, Director of Regulation, BAA Airports Ltd, and Kyran Hanks, Strategy and Regulation Director, Gatwick Airport Ltd, gave evidence.

Chair: Good morning. Welcome to the Transport Select Committee. Would you please identify yourselves and your organisations for our records?

Robert Siddall: I am Robert Siddall. I am the policy director of the Airport Operators Association, the trade body for UK airports.

Emma Gilthorpe: Good morning. I am Emma Gilthorpe, the regulatory director at BAA, which owns six airports in the UK, including Heathrow and Stansted.

Kyran Hanks: I am Kyran Hanks, the strategy and regulation director for Gatwick airport.

Q1 Chair: In what ways does the draft Bill represent a step forward for civil aviation?

Emma Gilthorpe: The existing legislation is now 25 years old, so it is a positive step in bringing it up to date and aligning it with some of the other regulatory sectors that have had revisions to their Bills in recent years. It introduces more flexibility into the system. At the moment, we have quite a rigid set-up where regulation is applied every five years against the backdrop of the Airports Act 1986. Most importantly, however, it puts the passenger at the heart of regulation, which, certainly from BAA’s point of view, is a material step forward in how economic regulation is to be conducted.

Kyran Hanks: The other aspect about which Gatwick is particularly keen is that the CAA will have the duty to promote competition between the airports. Since Gatwick was sold, we think that competition has increased significantly, to the benefit of passengers. Putting passengers at the heart of the CAA’s duty is also, as Emma said, a welcome modernisation of the airport regulations.

Q2 Chair: Mr Siddall, what is good about the Bill?

Robert Siddall: On behalf of all UK airports, we welcome the broad thrust of the Bill. It modernises the CAA’s powers and the regulatory framework, and good practice and regulation are good for all UK airports.

Q3 Chair: You have all expressed concerns about some areas. What are your key concerns, if you still have any?

Emma Gilthorpe: There are a few areas. We obviously have not had much time to review the Bill-it has been quite a speedy process from its publication on 23 November to this point-but there are a number of areas where either the lack of detail or a slightly confused approach causes some concerns.

One area is that of substantial market power and how it is to be applied to airports. A lot of detail sits behind that. There has been a lot of precedent in other sectors on how it should be applied, and it is important that it should be gone through very thoroughly. Within that is the concept of an airport area. It introduces a level of complexity beyond what one might assume to be an area for market definition-that it would be an airport rather than an airport area-which leads one to suspect that the market definitions are going to be quite complex. That introduces some concern for airport operators.

In addition, the other main point that I would raise is in respect of appeals. Again, there is a lot of detail to be worked through. It is very important that the appeals framework should be balanced; there should be neither too few nor too many appeals. Under the current construct, there is a risk that appeals will be quite numerous. That should be a cause for concern when it comes to the regulatory burden for both the regulator and the licensees.

Kyran Hanks: We, too, have expressed those concerns, so I shall not add to them. The only point of clarification that we seek through the process of the Bill is how the licence is to be issued to airport operators. We made the case recently to the CAA that Gatwick should not have a licence, and the CAA will be considering that. The process by which a licence is issued is something that we want more clarity on, adding to Emma’s points.

Q4 Chair: Mr Siddall, do you have any concerns?

Robert Siddall: I share the concern that proper safeguards should be put in place to ensure that we do not have a large number of vexatious appeals. I know that there is detail on that here, but we would like to see some clarity on that. We also have concerns about the idea that one tool to drive competition may be to have parts of airports in separate ownership. Although there are examples of that in some places, our concern is that it could cause a sort of race to the bottom in price competition, whereas our broad focus is on improving the experience of passengers. That is absolutely the theme for all our airports at the moment.

Q5 Mr Leech: You all said that you thought the Bill would be to the benefit of passengers, and you have all mentioned some of the potential problems for operators. What are the benefits for the airport operators?

Emma Gilthorpe: One benefit of the draft Bill as it appears today is that the regulatory framework will be streamlined; for instance, there will not be an automatic appeal to the Competition Commission in advance of the CAA, the regulator, making its decision. Again, that aligns with other regulated sectors. It will be a more flexible and agile framework. Rather than it being very structured, with the regulator having to make a decision every five years, it will allow the regulator to intervene when necessary to alter the framework through the licence. Rather than being enshrined within legislation, which is very difficult to alter, the licence will be a more agile vehicle.

Q6 Mr Leech: Does Gatwick have the same view?

Kyran Hanks: The main purpose of the Bill, frankly, is not to the benefit of the airport operator. It is to the benefit of passengers. Improvements in the passenger experience at Gatwick over the last two years will only be accelerated by this Bill. The passengers and the airlines will have the most benefit out of this Bill, clearly. We support it because it has benefits for the airport operators as well, but it is mainly the passengers that we are interested in.

Q7 Mr Leech: Mr Siddall, does the Airport Operators Association see there being winners and losers from these changes, or will there be winners across all airports, whether tiny or big?

Robert Siddall: Modernisation of the framework and good regulatory practice for the designated airports should lead to general good practice in the CAA’s role vis-à-vis the regulation of non-designated airports. The CAA obviously has powers and roles there, and I think that all airports would welcome a modernisation of the framework. That would be a good thing.

One of our concerns is the ability of non-designated airports to bear the additional costs that will come with the Bill, particularly the additional cost of security compliance staff being transferred from the DfT to the CAA. However, that really is a side leg to the Bill, and I do not want to make it our main focus. Our concern is that those additional charges will be difficult to bear for mid-sized airports, some of which are already loss making. It will be a material amount of money, so it is important that that is looked at and got right for those airports, but that is not to detract in any way from the good things in the Bill, which are very welcome.

Q8 Mr Leech: Is the cost of that transfer of responsibility your only concern?

Robert Siddall: That is a concern, but there are two halves to it, only one of which is in the Bill. The half that is in the Bill is the transfer of compliance staff to the CAA. The half that is not in the Bill is the Government’s overall move to an outcomes-focused regime on security, which is a different security regime for airports from today’s. We welcome that, and we will do everything we can to work with the Government to modernise the aviation security regime, but our point is that we need both halves of that equation and not just the transfer of staff and the cost. We need to see the new regime; it is a price worth paying, but the whole thing needs to fit together.

Q9 Mr Leech: Is there a problem with the way in which the DfT currently deals with the security side?

Robert Siddall: The UK has a very good aviation security regime. There is no doubt that it is one of the best models of good practice in the world. I think we would all agree with that, but that does not mean that it cannot be modernised and improved in the light of what we have learned as a result of the various threats that we have faced over the last 20 years.

Q10 Paul Maynard: First of all, may I draw the Committee’s attention to my entry in the Register of Members’ Financial Interests regarding Virgin Atlantic?

You all mention the importance of passengers and how the proposed legislation is supposed to be of benefit to them. Do you think that the Bill is sufficiently detailed in defining what a passenger actually is? Mr Siddall, you mentioned this in your briefing note.

Robert Siddall: Some members have expressed concern that this Bill is rightly focused on passengers and putting them at the heart of the airport experience, and the suggestion has been made that it would be good to have clarity about what we consider to be a passenger. That might sound somewhat trivial on the face of it, but because we are dealing with detailed legislation some members have expressed the view that that would be a useful addition.

Q11 Paul Maynard: Only some members. Not all? It is not a unanimous view of your members?

Robert Siddall: No, it is not a view that every single member has expressed strongly, but it is a valid point of view.

Q12 Paul Maynard: It was also striking, when reading their contributions, that there seems to be a split within the industry between the airports and the airlines, with the airlines believing that they are better representatives of the passenger than any other parallel body. Do you have any views on that and whether what is being proposed is the correct remedy?

Emma Gilthorpe: It is very important that airports focus on both their customers-the airlines and the passengers. It is fair to say that the airlines do an incredibly good job of representing their customers, but there are occasions when passengers are no longer customers of the airline. The example that I always use is in arrivals. When the passenger gets off the aeroplane and steps into arrivals, they are no longer a customer of the airline, but they are a passenger, and therefore they are a customer of the airport. There are aspects of the passenger journey that are not necessarily completely covered by the airlines’ responsibility to their customers, which they take incredibly seriously.

Kyran Hanks: Another point is that, when passengers go through our airport, they do not care who is responsible for what; they just want to get through as quickly as possible. Focusing attention on passengers will make all of us at the airport-the airlines, the handling agents and the airport itself-try to provide a seamless service to them. Putting passengers at the centre of it is the way to do that.

Q13 Chair: Does the Bill put forward good proposals for looking after passengers’ interests?

Emma Gilthorpe: I think so. For instance, there are some proposals on the publication of information. All airports already hold quite a lot of information; some of that is public, but not all. Transparency and the ability of the CAA to make some of this information transparent are key. One important factor to underline, though, is that many of the processes that the passenger experiences when going through the airport are not within the gift of the airport itself. For instance, when going through passport control, passengers interact with the UK Border Agency. If we are to pursue an approach of transparency of this information to assist passengers in making choices and understanding the levels of service quality that they get at airports, it is very important that it is reflected across the value chain and all the touch points that the passenger has.

Q14 Chair: Is there anything in the Bill that would make that happen?

Emma Gilthorpe: There is a clause in the Bill-I think it is clause 80-that deals with the publication of information. It gives the CAA the discretion to require the publication of information not only from airports, potentially, but from other actors within the airport community. It is important to underline that, because, if it is just about airports publishing information, you will get only a section of the passenger’s journey through the airport.

Q15 Chair: There is also a proposal, is there not, to set up a consumer panel of some sort? Have any of you been involved in any discussions on that?

Emma Gilthorpe: Yes. We have been in discussion with the Civil Aviation Authority about that. BAA is supportive of the idea. It is very important that the CAA arms itself with a strong passenger perspective. Again, other regulated sectors have similar methods. Of course, there are costs associated with this, and we need to ensure we balance the costs and benefits. However, having a standing panel whose pure focus is on consumers and passengers is a positive step forward.

Q16 Iain Stewart: First, I would draw attention to my entry in the Register of Members’ Financial Interests regarding Virgin Atlantic.

I have a follow-up question on the representation of passengers’ interests. It was proposed at one point that Passenger Focus should represent the interests of air passengers alongside those of rail and bus users, but that was ruled out. Do you agree with that?

Emma Gilthorpe: I think that the vehicle is less important. What is important is that there is an independent body, independent of the regulator and the industry, which can focus all its energies on the passenger. Whether it is done through Passenger Focus or a consumer panel, it is the independence of that body that is most critical. They can perform similar functions; they can request that research be conducted into passenger needs, they will obviously have their own experiences and they can also seek evidence from the passenger groups, some of which already exist at each of the airports. We have passenger representation committees at the airports that can link in with the consumer panel. The vehicle matters less than the fact that there is an independent body.

Q17 Iain Stewart: Are you satisfied that the new Aviation Consumer Advocacy Panel will be independent?

Emma Gilthorpe: From what I have seen, I am satisfied, but the devil is in the detail. We have yet to go through that process with the CAA.

Q18 Iain Stewart: I have a question on a separate area, and that is about the impact of the Bill on smaller regional airports. Do you have any concerns that there will be a disproportionate cost from this Bill on such airports?

Robert Siddall: We are concerned about all costs on regional airports. Members of the Committee will of course know the general backdrop at the moment; there is a downturn in business, traffic is heavily down and so on. Those airports are often squeezed anyway, and they face even tougher times than they did three or four years ago.

Our main concern is the cumulative effect of additional regulatory costs. It is not just about the costs of the Bill per se. For example, under the Policing and Crime Act 2009 those regional airports had to pay for their airport policing for the first time. That is another cost that was transferred to them, and I could cite many more examples of additional costs. The problem is cumulative. When you do the sums, you see that they are material. The provisions in the Bill could cost a 10-million passenger airport in the order of £200,000 a year, which is material for them. Airport MDs often say to me, "I have spent ages trying to save £50,000 out of my costs, but in a stroke those savings have been wiped out by a tweak to the regulations." It is not about these provisions per se; it is more about their cumulative effect on the viability of regional airports. We have seen a couple of them close and there is no doubt that they are up against it.

Q19 Iain Stewart: Are there any particular modifications that you would like to see that would lessen the impact?

Robert Siddall: In good part, the costs come from the transfer of the security functions to the CAA and the savings associated with that. If we saw the outcomes-focused regime delivered alongside it, we would consider it to be absolutely worth paying for. However, the new security regime has big challenges associated with it in terms of Government resource to make it happen and in making it happen at a European level, because security regulation is mostly framed in Europe. We should not underestimate the challenge of delivering a different aviation security regime. Our main desire would be to see that regime delivered, but with one small addition. In areas such as the new provision for the CAA to provide environmental information, we are absolutely in favour of good transparency in that debate. Poor facts have dogged the environmental debate for years, but we do not want to see duplication of information that already exists. We are also looking for value for money in these new powers.

Q20 Julian Sturdy: Most of my questions have already been asked by Mr Stewart, but the answers were what I was looking for anyway.

I would like to follow up on regional airports. I entirely agree that the cumulative effect on regional airports is becoming quite a concern. Outside the south-east, it is becoming harder and harder for certain regional airports to compete. With the new Bill and further regulations, are we ultimately getting to the stage where more regional airports will close because of the regulations that are coming down the line? Is it a concern that you think is out there?

Robert Siddall: It is certainly a concern that is out there, and we have already seen a couple of examples of that. I am not into the high detail about the position of all our members, in terms of their viability and so on, but there is no doubt that they are having an extremely tough time, and I have no doubt that it is more than shroud-waving. However, airports have adapted quite heavily over the last few years to the additional costs and to the new business climate in which they are operating. Many of these airports are very adaptable, and they are repositioning themselves to grow and get stronger. We hope that that happens. It is not about the provisions of the Bill per se; it is about the cumulative effect, which is much wider.

Q21 Julian Sturdy: I agree with you on that, but I think you hit the nail on the head when you said that it is the cumulative effect and this is part of it. Do you think that the Government recognise sufficiently the impact on regional airports away from the south-east?

Robert Siddall: The challenge for the Government is that policy and regulations emerge from different divisions in different Government Departments. What happens is that the officials dealing with policy in one bit often see the particular cost associated with a policy or regulation and argue that the cost is small, and taken alone it may be; but the question is this: who is looking at the big picture? Like the previous Government, the present Government are interested in the regulatory burden and so on, and there is activity in that area, as we know, but it is too early to say whether the more recent initiatives will have an impact.

Q22 Chair: Mr Hanks, in your written evidence you suggest that Gatwick should not be regulated and that competition is doing the job. Does that mean that you are against the regulation of airports?

Kyran Hanks: I am not against the regulation of airports. We are simply asking the CAA to take account of the evidence of Gatwick’s performance since it was sold by BAA. Passengers are very happy with the service that they get at the airport. British Airways passengers love the north terminal extension; we recently took some of you around it. Airlines are choosing the airport, and we are becoming, if you like, the gateway to the east. We have airlines from Vietnam, we have just announced that China will be coming to our airport, and we have Hong Kong, South Korea and Malaysia. All the evidence is that separate ownership and competition is driving a superior performance at the airport, and we do not think that regulation is necessary in that environment.

Q23 Chair: Would you propose any changes to the licensing regime suggested in the Bill if Gatwick was not to be designated?

Kyran Hanks: It will probably be the case that Heathrow will stay regulated. We would probably want Stansted to be considered once it is separately owned and the case for regulating Stansted to be considered seriously. We do not propose any changes in the licensing regime. We believe that it is a sensible step forward; it is just about the test that the CAA has to apply to decide whether Gatwick needs a licence. We want that test and evidence to be properly considered, and we put our evidence to the regulator last week.

Q24 Chair: You have put forward a case for not being designated.

Kyran Hanks: Yes, and that is heavily based on the CAA’s previous views on these matters, the Competition Commission’s call for the break-up of BAA and, crucially, the improvements in performance for our passengers that separate ownership and competition have brought about. The main plank of our evidence is that competition seems to be working, whereas regulation probably was not ideal for Gatwick airport in the past.

Q25 Chair: Ms Gilthorpe, what kind of competition should be promoted between airports?

Emma Gilthorpe: There are two different types of competition in the UK airport sector. We have Heathrow, the UK’s only hub airport, which drives billions of pounds of trade, growth and jobs in the UK every year. Heathrow competes with other European hubs such as Charles de Gaulle, Frankfurt and Schiphol for that hub traffic; people collect at Heathrow and then travel onward to their destinations. We then have point-to-point airports such as Gatwick and Stansted, which BAA owns; those compete both within the UK and with other European point-to-point airports. It is important that the market assessment that is undertaken is thorough, because these are different types of market. As Mr Hanks suggests, there is no current expectation that Heathrow as the UK’s only hub would be deregulated, but there is a question to answer about the right level of regulation for the other airports that are currently designated. It is important that they are not restricted in their ability to compete by overly burdensome regulation, as it would be a lost opportunity to the UK economy.

Q26 Chair: Mr Siddall, do you have anything to say about regulation?

Robert Siddall: The bulk of members in the UK, and certainly most of the regional airports, are in a very competitive situation. There is no doubt that they compete with each other to get passengers and to maximise the number of people in their catchment areas. They are competing for airline routes, often across Europe and not only in the UK. If an airline is looking to put on new routes, they might come to the UK or they might go to another country in Europe. Many airports are fighting hard to win new routes right across Europe, and they see themselves as being in a very competitive situation. There are obviously exceptions, which is why we have a regulatory regime. However, these airports are free to set their prices as they can and the market takes care of that.

Q27 Chair: Concerns have been expressed about airlines making potentially frivolous appeals. Why is that a worry? What would be a frivolous appeal?

Kyran Hanks: An open-ended appeal mechanism is a fairly cheap option to try to hold up the regulator’s decisions. Our concern is that in other sectors-the telecoms sector is one-the regulator’s decisions get bogged down in appeals to the Competition Commission or the Competition Appeal Tribunal. We believe that it is sensible to give some clarity to airport operators and airlines, saying that appeals on matters of substance are to be allowed, but appeals that are seen as a delaying tactic-some of our stakeholders are good at that-will not be allowed by the regulatory authorities.

Q28 Chair: Who is going to decide whether the appeals are frivolous or serious?

Kyran Hanks: Currently, the proposal is that the Competition Commission decides whether an appeal is frivolous. For appeals on licence conditions, the Competition Commission is a sensible body to make that call.

Q29 Chair: Would you prefer that system to the one that is proposed?

Kyran Hanks: The one that is proposed is that the Competition Commission should take the decision on vexatious appeals.

Q30 Chair: Could vexatious appeals be made by airports as well as by airlines?

Kyran Hanks: It is difficult to envisage. Currently, 100% of an airport operator’s revenue is subject to regulatory review, so I should have thought that any appeal would be substantive. Clearly, we would not be worried about the commission having the ability to rule on a vexatious appeal from an airport operator.

Q31 Chair: Ms Gilthorpe, what are your views on appeals?

Emma Gilthorpe: It is important to focus on the fact that the initial process that the CAA goes through for determining a licence condition or a price control associated with a licence condition is thorough, robust and very transparent. There is plenty of opportunity for all stakeholders to contribute to that process in that initial phase.

Once the CAA has made a decision under those conditions, we have to be careful not to encourage the actors to appeal beyond what is described in the Bill as being "materially affected". I am not entirely sure that we all understand that. In the context of Heathrow, we are going to make £5 billion of capital investment in the current five-year period, and regenerate £1 billion-worth of aeronautical revenues every year, and small changes within that price control could easily constitute being "materially affected". It is hard to see how any decision relating to a price control would not generate some sort of appeal, and you would end up in a vicious round of appeal processes. That would create a lot of uncertainty and potentially impair the substantial investment required to make our airports better places for our passengers.

Q32 Chair: Mr Siddall, do you have any views on this aspect?

Robert Siddall: I do not offer any expertise on the high detail, but a wider concern is that we should not see a regime that allows vexatious appeals that could lead to precedents in other areas of UK legislation. Of course, with the transposition of the airport charges directive, there is a form of appeal mechanism right around the UK. I am not an expert on remedies for vexatious appeals or how to prevent them, but we would want to avoid a situation where it simply appears to be worth making an appeal because one might get a better result.

Q33 Chair: In that context, how do you view the proposed regulations? Would they lead to vexatious appeals?

Robert Siddall: To be honest, I do not have the expertise to offer a detailed answer.

Emma Gilthorpe: They lack a bit of clarity at the moment, and it would help if there was more detail about the concept of being "materially affected". Establishing some clear thresholds would be helpful in creating the certainty that is very much needed by the regulator, the industry and the passenger in order to create the right investment environment.

Q34 Chair: Mr Hanks, do you want to comment on that aspect?

Kyran Hanks: Just to add some clarity on what is meant by "materially affected" would be a useful addition to the Bill as it goes through the House, because at the moment it is relatively undefined.

Q35 Mr Leech: I am sure that you would all say that airports have a good relationship with airlines, but I know that there is tension there from time to time. There was certainly some tension during the bad weather last year between the airlines and airports. Will the proposed changes help to give you a better relationship with the airlines, or is there a potential for more tension as a result of these changes?

Emma Gilthorpe: I do not think that there is the potential for more tension at all. BAA will have failed if it has to rely upon a piece of legislation to make its relationship with airlines work. We have been working incredibly hard over the last year to ensure that we are all working together. That was exemplified by our performance during the general strike on 30 November, which impacted on the UK Border Agency; we worked very positively together.

At the heart of that sits a lot of information sharing and contingency planning; that is how you avoid getting into those stressful situations. In the normal course of business, our relationship with our airlines is incredibly good. It is only when circumstances put it under pressure that you start to see some dissatisfaction arising, but we have learned a lot. We have exemplified that with our recent performance, and we have every expectation of continuing to have a constructive and passenger-centric approach to our relationship.

Q36 Mr Leech: In terms of the relationship between airlines and airports, do you see these changes as positive?

Emma Gilthorpe: I would say that they are broadly neutral to positive. Some of the information and publication potential within this will help a little, as well. Airports-and, indeed, airlines-are often criticised for poor performance when it is the fault of neither but simply that a passenger has had a particularly difficult time. It is most important that we work together so that the airports where we operate all function well, on time every time.

Q37 Mr Leech: Would Gatwick agree with that, Mr Hanks?

Kyran Hanks: We would be slightly stronger than that. For instance, easyJet is our No. 1 airline and we are proud of it; we want it to stay at the airport and choose to grow there, but clearly it has a very vocal and outspoken view of life, so we have a healthy tension with our No. 1 customer. By giving the opportunity to get the regulator out of this three-ring circus, the Bill should improve relations between airports and airlines because we can substitute the regulatory quagmire that we have now with proper commercial relationships. That is what we seek, and that is what the Bill allows, so we are very keen that it goes through as drafted. We believe that it will improve relations and they will be even better than they are now. Our relationship with our airlines over the last two years has improved dramatically. The kind of performance that we had in the snow last year and through last week’s strike show that, under pressure, we and the airlines can work together to the benefit of passengers. The Bill can only improve that.

Q38 Chair: Mr Siddall, the Airport Operators Association tells us that there is no definition of what constitutes a passenger. Would you tell us a little more about that and how you would like to see that changed?

Robert Siddall: That point was raised by some members. The whole thrust of the Bill is about placing the passenger at the heart of regulation, which we welcome. It is a good focus, and we have always supported it. However, getting into the minutiae, it may be good to know what is meant by "passenger", given that it is a legal document. That is our concern, simply put.

Q39 Chair: Are those concerns shared?

Emma Gilthorpe: It is always valuable to be clear about such references. It is not one that we have particularly highlighted in our response, but a clear definition across various aspects of the Bill is vital to its effective transition into regulation.

Kyran Hanks: The only point we would add is that the CAA has been clear on whether it needs to be in the drafting that "passengers" should include not only passengers today but passengers tomorrow. Quite a lot of our investment at the airport is about attracting tomorrow’s passengers as well as keeping today’s passengers. That sort of today and tomorrow definition could usefully be explored.

Q40 Chair: Ms Gilthorpe, what do you think should be added to the final licence conditions to give airports clarity on operational expectations?

Emma Gilthorpe: We have seen early signs in the CAA’s advice to the DfT of what should be contained in the licence. It broadly looks as if it contains most of the aspects that you would expect to see within a licence. Without more detail on the drafting, it is quite difficult to comment, but most of the key terms appear to be there.

One area where we will need to ensure clarity is the introduction of the operational resilience condition. There is potential here for conflict between economic regulation and the aerodrome licence, which we also have to have for operating an airport-the technical aspects of how you run your aerodrome and the way that you are regulated from an economic point of view. There are resilience requirements in the aerodrome licence, and now we have resilience requirements in the licence. It is how the reference to penalties and sanctions for poor performance will sit against the current regulatory environment, where those airports that are designated are currently subject to a service quality regime that requires us to pay rebates if we do not deliver a certain level of service quality. It is about making sure that all those different vehicles that exist today sit neatly alongside the licence. It would be wrong, and it would be poor regulation, if you had some sort of double jeopardy or conflict between those things, as it would again cause uncertainty and impair the airport’s ability to perform at its best.

Q41 Chair: Are there any other concerns about the licence conditions and lack of clarity, particularly of the definition of an efficient and reliable airport?

Kyran Hanks: Some care needs to be taken as to what that means. The operational resilience licence condition could be taken to imply that the regulator should have oversight of all parties at an airport, using the vehicle of the airport operator’s licence to do so. We believe that care needs to be taken to ensure that it is properly drafted. We are supportive of the financial resilience licence condition. It is clear from the CAA that any intervention in the financial structure of the airport applies only to an inefficient operator, and we are supportive of that.

Emma has already made the point that we do not want to be double charged. Currently we are not paying any penalties for bad service quality, because we are meeting all of the many targets that the CAA has set us. This is the first time that that has happened for us during this regulatory period. If we are paying penalties in one area, we clearly do not want to have to pay them for the same incident in another area. Ensuring that the two sanction penalties meet properly is an important area of drafting clarification going forward.

Q42 Chair: Mr Siddall, do you have a view on that?

Robert Siddall: I have nothing to add to what has been said on that question.

Q43 Chair: I return to the question of security and the transfer of responsibilities. Are you all clear about what duties airports would have under the proposed new arrangements? Have any of you been involved in discussions about what those duties could be?

Robert Siddall: The AOA has been involved in discussions with the DfT about the overall shape of a new security regime. We have had quite extensive conversations, and that process is going on now. We have yet to see exactly which functions in the detail will be transferred to the CAA. We had some information on that yesterday from the stakeholder session run by the DfT, but, broadly speaking, we are talking about what would have been known as the compliance function, when Transec was a separate division within the DfT as the aviation security regulator. Transec has now gone, of course, and is part of the main DfT structure, but there is a compliance function under which airports are inspected to ensure that they are compliant with the aviation security regime. The broad understanding is that that function will be transferred to the CAA. There is logic in that, of course, because the CAA already inspects aerodromes for aerodrome safety matters. The logic says that, if you are inspecting for security matters, there are potential synergies and crossovers that you can take advantage of. We can see that, but the move to outcomes-based regulation has to be part of a wider security regime. We are fully supportive of that and think that it is a very good idea, but it has to be got right. It is a challenging thing the Government are trying to do.

Q44 Chair: What are your greatest concerns about it?

Robert Siddall: We have to move from a good idea to a tangible set of outcomes. We have called it an outcomes-based regime, but we have to move on. We cannot work out all the detail at once-we are not going to wave a magic wand and go straight to it-but we have to move from the concept and ask what a tangible regime would look like.

As soon as you ask that question, you get into issues such as whether you can apply this new regime to all security regulation or only to the parts where the UK regulates more stringently-which it does; the UK has its own measures, so there is a debate. The bulk of security regulation is made in Brussels at present and many of the UK’s measures relate to Brussels measures, so whichever way you look at it, the road leads back to EU legislation. Then there is the challenge of how you do that at EU level, given that they recently overhauled their security regulations. I am into detail now, but that is where the debate turns.

Chair: The detail is very important, Mr Siddall.

Robert Siddall: Another thing is that this is a really big challenge, and to do that and deliver needs big resources. We heard the CAA say yesterday at the DfT’s stakeholder session that the transfer of staff to the CAA was a big challenge and would need a lot of work, but that is only one part of the story. The whole thing needs a good amount of attention. The Government are in that process. I do not suggest that they are not looking at this. It is their intention to move to this regime, and we support them in that. I simply make the point that it is a challenge and we should not underestimate it.

Q45 Chair: Mr Hanks, do you agree with that or do you have any other comments?

Kyran Hanks: Moving people is always a challenge, so it has to be done properly, and I understand people’s concerns about it. The CAA is a world-class safety regulator, and there is no reason why its record should not be continued when it adopts these functions. We are fully supportive of this, as long as moving the people is done properly.

Q46 Chair: Ms Gilthorpe, do you welcome this change?

Emma Gilthorpe: Yes.

Q47 Chair: What problems do you foresee?

Emma Gilthorpe: The problems have been described to some extent, but we must not lose sight of the passenger in all this. The implications if it is not being done efficiently and effectively are that, potentially, passengers will suffer and the security process will be affected. Three aspects are important. The first is that the staff should move swiftly and efficiently; they should understand what is happening to them, and the CAA should have total clarity about its role and responsibilities. The second is that the CAA should move away from its current approach, which is more like the direct-and-inspect approach that the DfT takes, to a more quality assurance-based review of the way that the security system works. The third is that we should focus heavily on the outcomes-based and risk-based approach to how security happens. It should not be the homogenous approach that we may have been subject to in the past, where every passenger is considered in the same way, but looking at passenger profiles depending on the risk that is associated with them, and focusing more effort on those than on the less risky passengers.

Q48 Chair: Should the CAA have a supplementary duty to the environment?

Emma Gilthorpe: There is an ongoing policy review being conducted by the DfT into how to achieve a sustainable aviation sector in the UK. Environmental issues are a matter for central Government rather than a sector regulator. There is a clause in the Bill that allows the regulator to publish certain information, and there is potentially a role for the regulator to act as an independent voice. There are many different opinions and facts, and there may be some value in using the CAA’s already well established credibility in things such as safety and economic regulation in that area, but I believe that environmental policy is a matter for central Government and not the CAA.

Q49 Chair: Do you all agree with that or does anyone want to give any different views on that?

Kyran Hanks: In terms of economic regulation, which is where there has been a debate, we agree that there should not be a supplementary environmental duty, as it is a matter for the ongoing policy review of Government. So yes, we do agree with that.

Q50 Chair: Mr Siddall, do you have a similar view?

Robert Siddall: One of the challenges is that the environment as it relates to aviation covers many facets, from local issues right up to global ones such as carbon emissions. We have been working consistently over the last few years for a global deal on aviation emissions. If we cannot get that quickly, we will support the EU emissions trading scheme, which has real caps and real targets. We have consistently supported that, but with emissions you are talking about a global problem, so we believe that the proper place to deal with them is to start in Europe and, as soon as we can, to go global. We would not want to see additional UK regulation adding to what is already there. On that aspect, we take a more internationalist approach, but in other respects the CAA could add value. There is a provision about providing information, and if that is good quality macro-level information it will help with the debate on the environment.

Q51 Chair: How much will the CAA’s new provision-of-information duties on consumer and environmental concerns cost?

Emma Gilthorpe: It is very difficult to say at this stage without an understanding of the detail. The Bill is naturally cast quite widely at the moment, and we need to understand how the CAA will use its discretion. It is important that it sets out some views, some guidelines, on how it will implement it, because the costs could potentially be very high, depending on the frequency and the depth with which it expects information to be published. Information overload would not be a good outcome for passengers, but transparency of key information would be a very good outcome for them.

Kyran Hanks: We already publish information on some of the stakeholders at the airport. For example, in the arrivals hall you can find out how long it takes your bags to arrive and who the handling agents are. Our arrivals baggage performance is now at record high levels; since we began publishing this information. The airlines were not keen on it. We have been giving the UK Border Agency information about the queues in our arrivals halls; that has improved performance there, albeit that there is still some way to go. In general, we think that publishing information is a good thing but that we should guard against information overload. The costs of publishing information would not be prohibitive, and you can see the benefits from the improved performance at our airport, so we support it.

Chair: Thank you very much for coming and answering our questions.

Examination of Witnesses

Witnesses: Dr Barry Humphreys, Chairman, British Air Transport Association, David Hart, Head of Economic Regulation, British Airways plc, Sian Foster, General Manager, Government and External Relations, Virgin Atlantic Airways Ltd, and Paul Simmons, Director UK Market, easyJet Airline Co. Ltd, gave evidence.

Chair: Good morning, and welcome to the Transport Select Committee. Would you give your names and organisations for our records?

Sian Foster: I am Sian Foster, General Manager of Government and External Relations at Virgin Atlantic.

Paul Simmons: I am Paul Simmons, the UK country director for easyJet.

David Hart: I am David Hart. I am Head of Economic Regulation at British Airways.

Dr Humphreys: I am Barry Humphreys, the Chairman of the British Air Transport Association.

Q52 Chair: Are you confident in the CAA’s ability to manage conflicts between the interests of air transport services users and providers?

Dr Humphreys: Yes, I think we are. The Bill that has been tabled is a good Bill, and we are supportive of it. There are inevitably challenges involved in it, but perhaps my colleagues would like to speak on that.

David Hart: The thing for me is to ensure that the institutional arrangements in the Bill give the CAA the power to resolve potential conflicts but also ensure that that power is exercised with proper accountability. For me, the focus of the primary duty on the passenger is to be welcomed. The flexibility of the licence regime gives the CAA concurrent powers under the Bill that would allow it both the right focus on our passengers and the powers to intervene. Balancing that with a proper right of appeal for airlines on those sorts of decisions strikes the right balance. The institutional arrangements within the Bill look to be broadly right to me.

Q53 Chair: In your written evidence, you criticise the Government’s omission of a duty to regard the views of airlines.

Dr Humphreys: Yes.

Q54 Chair: Will you tell us why you are concerned?

Dr Humphreys: We believe that, in the airport regulatory environment, the airlines play an absolutely central role. We do not think that the Bill as currently drafted recognises that role sufficiently. May I give you an example?

The quinquennial reviews are extremely lengthy and technically complex, and they are expensive to participate in. It is unrealistic to expect individual passengers or, indeed, their representative bodies to get deeply involved in the process. We are dealing with issues such as the regulated asset base, the cost of capital, investment in baggage systems, queuing times and so forth. Those are issues where, to a significant extent, only the airports and the airlines are capable of participating fully. We would like to see the role of the airlines more formally recognised in the duties given to the CAA. Ideally, we would like to see it done in the primary duty, but if that is not possible, there should be at least a recognition of it in the secondary duties given to the CAA. We understand that the CAA is required to consult airlines and other stakeholders, but in our view that is not sufficient. There needs to be a legal basis for taking account of the views of what, after all, are the principal customers of the airports.

Q55 Chair: Why do you think the duty to consider airlines was missed out?

Dr Humphreys: The Government’s focus-this is true of the more general approach to regulation in this country-is very much on the ultimate consumer. We recognise that and accept it. However, as I said, there are particular matters in the regulation of airports that inevitably require the close involvement of airlines. Originally, the proposal was that the need to take account of the interests of airlines would be recognised as a secondary duty. That seems to have disappeared.

Q56 Chair: Why is that? Why do you think the Government dropped this aspect?

David Hart: I think there is possibly a slight misunderstanding of the way in which the aviation sector works compared with other regulated industries. If you take the water industry, for example, the regulated water companies deliver direct to the consumer, and therefore you do not have intermediary bodies like the airlines in that regulatory process. The primary duty focuses on the end user-the consumer of water products. In the aviation industry, the airport supplies products to an airline and the airline supplies the whole product to the passenger. We are somewhat unusual as an industry, and if you take the standard regulatory approach and focus only on the end user, you miss the fact that the end user consumes the product through an intermediary-through the airline. It is probably just a slight misunderstanding.

Q57 Chair: Who has made the misunderstanding?

David Hart: I think that, in the redrafting of the Bill, the Government may have tried to keep it tidy and clean.

Q58 Chair: Are they wrong to have left out the airlines?

David Hart: I think they are, yes.

Q59 Chair: Mr Simmons, do you think that the interests of airlines are sufficiently covered in the Bill?

Paul Simmons: The key thing is that the role of the end user or passenger is at the heart of the Bill, and we welcome that wholeheartedly. One of our core internal values is that we ought to be on the passenger’s side. That is not being altruistic, but very commercial in that we recognise that a happy passenger is one who is going come back more and bring more value to us over the longer term. Our interests are absolutely aligned with the focus of the Bill, which is to put the firm focus on the passenger at front and centre. Whether or not it needs to be explicitly mentioned, it is implicit throughout the drafting in the Bill. As we go through this process, we shall have to keep an eye on that, but the main thing for us, which we are extremely pleased about and why we support the Bill, is that the passenger is at the centre of the focus.

Q60 Chair: Ms Foster, do you have any concerns about the airlines’ interests not being considered?

Sian Foster: I think that airlines should have a formal role in this. We know our passengers better than anyone else in the process. We spend more time with them; we know them from when they first make the booking to when they leave the airport. We are lucky that in the UK we have a very competitive airline environment. There are lots of different business models out there serving many different sorts of passengers and providing many different services. We know that, if we do not treat our passengers well, they will not come back; they can fly with someone else. Passengers see the whole of the travel experience as being the responsibility of the airline, not just the bit when they are sat on a plane. There should be a formalised role for airlines in that, but we absolutely concur that putting passengers at the heart of the process should be at the core of the Bill.

Q61 Chair: We have been told that airlines might make frivolous appeals. What do you have to say about that?

Dr Humphreys: We had numerous meetings with officials, and indeed the Minister, from the Department for Transport on the question of appeals, and we went to extreme lengths to address every one of the issues that was raised. Indeed, we employed external experts in regulatory law. Incidentally, we also invited Ryanair along to be an honorary BATA member in order to participate in these discussions, following comments about who was most likely to make frivolous appeals, and I would like to say they were extremely constructive and helpful.

We believe that the model we put forward completely avoids any chance of frivolous appeals. First, the Competition Commission is able to reject an appeal without a hearing if it believes it to be frivolous. Secondly, it is required to allocate costs, and significant costs are involved in this. Thirdly, anyone entering into an appeal will incur substantial management costs. These are not processes that anyone would enter into unless they were seriously concerned about something. The most important factor is that having the right of appeal for airlines will, hopefully, mean that no one will ever have to appeal. To use a phrase that we used with the CAA, it will keep the CAA honest. If there are appeals from only one side of the equation-if only the airports have the right of appeal-with the best will in the world, the CAA will inevitably come under pressure to lean in one direction. If you have equal opportunity for appeals, you are more likely to have a sensible and acceptable outcome.

Q62 Chair: Does anyone disagree with that? No, you are all in agreement.

Dr Humphreys: Madam Chairman, may I add one point? I have heard the airports suggest that they would never dream of appealing frivolously, but I am not sure that I completely agree with that. We have witnessed BAA trying to use every conceivable legal means available to them to avoid selling Stansted. Despite the decision of the Competition Commission, the case has dragged on and on for a very long period. I think that airports themselves are capable of using these appeal mechanisms.

Q63 Chair: So you think that it is the airports rather than the airlines that we should worry about?

Dr Humphreys: The evidence would suggest that, yes.

Q64 Mr Leech: I asked the previous witnesses whether they thought that the Bill would improve the working relationship between airports and airlines. For the most part, the relationship is constructive and useful, but there are occasionally tensions between the two sides of the business. Do you believe that the Bill will improve that relationship between you as airlines and airports?

Dr Humphreys: I am sure that my colleagues will want to add to this, but may I start? First, the relationship between the airlines and the airports is on the whole very good, but we have to be realistic. In the regulatory process, we are faced, on the one hand, with a monopoly airport-if it was not a monopoly it would not be regulated-that inevitably wants prices as high as possible. On the other hand, we are faced with airlines and passengers who want prices as low as possible. There will always be a conflict there, and that is why we have a regulator; otherwise, we would just sit down over a cup of tea and sort it out. You cannot get away from some friction, I am afraid, in the real world.

David Hart: The key thing for airlines, as my colleague has said, is our passengers. Our focus is completely on our passengers and delivering the quality of service that they have come to expect when they buy a ticket from us. From the point of view that the primary duty puts an emphasis on the regulator and the regulated airport to care as much about our passengers as we do, that can only be positive. If you include in that the additional flexibility that a licence regime brings, there are reasons to suggest that the new regime will improve the outcome for passengers at airports. The question we discussed previously, about giving airlines more of a voice, can only be more beneficial.

Paul Simmons: I agree. The other point to make, going back to the appeals situation, is that the Bill has symmetry, which is critical to maintaining good relations. We do not want to risk some sort of capture of status that is not symmetrical. In other words, if an airport has a greater right of appeal than an airline, there is a risk that, potentially, the CAA may listen more keenly to the airport, which has the appeal power, than to the airline, which may not always have that power. That symmetrical relationship needs to be maintained in order to maintain good relations between the airports and the airlines. That is critical.

Sian Foster: We have a good working relationship on many levels with the airports that we serve. As mentioned earlier, during the UK Border Agency strike last week, our well organised and well structured response meant that disruption to passengers was absolutely minimised. Our passengers should expect us to work well together to minimise the impact of disruption resulting from events outside the industry’s control. However, in terms of the working relationship, by moving to a licence-based regime, this Bill will provide a shift away from fixed five-year terms, where you are negotiating charges seven years in advance of when they will actually be paid by the passengers. That means, in our case, that passenger charges have gone up by 50% in the last three years, at a time when the rest of the industry has been massively driving down on the cost of doing business, becoming more efficient and focusing on affordability for our consumers. There is a real possibility under the Bill to improve that for the passenger, particularly when you look at the cumulative costs of air passenger duty, visa charges and everything else that goes into the passenger cost mix before they even buy their tickets.

Q65 Mr Leech: Moving on to the question of security, we probably have the best airport and airline security in the world. The old adage is, if it ain’t broke, don’t fix it. We propose change, but, if we already have the best system, do we need to change it?

Sian Foster: Staying still is not an option either. An outcomes-focused risk-based security regime is the optimum, and that is what we should be aiming for. There is an awful lot of detail still to be worked out about how the transfer of responsibilities from the DfT to the CAA will work, but we are all working towards protecting that very high standard of security provision but in a way that improves the passenger experience at the same time.

Dr Humphreys: The proposal is not to transfer policy but to transfer its implementation and the costs of that implementation. The policy will remain with the Government. We have one concern, however, about a potential disconnect between policy and implementation.

There is a risk-we have seen this with other regulated sectors-that policy can be formulated without any concern for how it is to be implemented and how much it will cost. We need greater clarification on how the process will be handled in the area of aviation security. There has been no consultation on the subject so far and, as Sian said, we need much more visibility on the details. I also think that there is room for improvements in efficiency while maintaining high quality. The current security regime imposes costs on foreign and UK airlines of about £1 billion a year, and it would take only a small percentage improvement in that to generate significant amounts of money. On the other hand, we are apparently to be charged an extra £5 million, which is never welcome.

Q66 Iain Stewart: I would like to turn to the new duties to provide consumer and environmental information. In its written evidence, Virgin Atlantic says that the breadth and quantity of the information is considered potentially disproportionate, and British Airways says that it is wholly disproportionate. Would you expand on that concern, please?

Sian Foster: We do not yet know exactly what information will be required, so it is difficult to understand exactly what the burden will be. However, it should be information that is justified and required and which is important for the consumer to know. Consumer information and environmental information have been touched on previously. There is a strong role for the CAA in providing independent advice, weighing up the environmental trade-offs and options, acting as that objective voice of provider of independent evidence on a variety of environmental impacts on the industry. There is a very strong role there, but it has to be proportionate and cost effective, and it would have to be of value to the consumer.

David Hart: I agree with what has been said. For us, there is also a concern about the general breadth of the information-gathering powers. There is a long list in clauses 80 and 81 saying where the powers could be applied and the types of information that the CAA could gather. It is a case of proportionality and what is the market failure that this regulation is attempting to address. We believe that well informed passengers are really important and that when people make a decision about which airline to fly with they need a good information base. Of course, it will partly be informed by whether they have flown with us before and whether they had a good experience. Ultimately, that is the best consumer information that they can have. There is an awful lot of information already out there, so we do not necessarily understand what it is that these powers are designed to do or how they are to be applied.

Q67 Iain Stewart: Are there any specific examples that you would wish to see removed?

David Hart: At this stage, we would like to understand what the Government are trying to achieve with each of the potential requests for information that might flow from clauses 80 and 81.

Paul Simmons: One of the issues is to ask what is currently broken. The move to a tighter focus on the passenger may require some additional information, but it is not quite clear what that would be. The other thing is that the CAA already has large powers to request data, and we happily hand it over. Although it has the power to oblige us to do so, it has never had to use it, as we hand it over voluntarily. A healthy dialogue and information sharing is going on already, so exactly what additional information is required and why is not quite clear.

Q68 Chair: I return to the question of security. Dr Humphreys, you said that you had not been consulted on any of these changes, and everyone seemed to agree with that. Are there any particular changes in how things are done now that would make security more efficient and perhaps cost less? Have any of you thought of anything specific? Do you think that there might be some temptation to cut back in order to save money at the risk of public security?

Sian Foster: We do not expect any cost savings in the short to medium term. It is about providing a slightly different approach to security regulation rather than cost-cutting on behalf of the industry. We are very keen that at least as good a standard is provided as we have now.

Q69 Chair: Do you have any ideas or proposals on how you would like things to change?

Sian Foster: It is very much work in progress. We are probably not the best people to talk about it; it would be a case of having discussions with our security experts within our airlines.

Dr Humphreys: Until we understand the process involved-who is going to be transferred, what criteria will be used and so on-it is very difficult to comment on the detail. As I said, there has been a lack of consultation so far, and we very much look forward to participating in the future in that consultation.

David Hart: The final structure of the new security regime is quite important if we are to move from the direct-and-inspect approach to a more outcomes-based approach. At the moment we do not know where we are going to end up, as the Government are still consulting on security arrangements for outcomes-focused, risk-based security. It is a bit up in the air, and we do not know what we are getting. We know that the Bill is coming, and we know that there are huge opportunities for the industry. Outcomes-focused regulation would allow us to innovate and provide a better service for our customers, but because we do not know the precise nature of the regime it is difficult say exactly how we would implement it.

Q70 Chair: Are you saying that, at this stage, you do not know what is envisaged?

David Hart: Exactly.

Q71 Julian Sturdy: Are you saying that you are slightly unclear how the responsibilities for aviation security will be divided? Is there some concern over that?

David Hart: There are a couple of issues. One is the split on policy responsibility and operational responsibility between the CAA and the DfT. There is a lack of clarity for us, as an airline, about exactly who will be doing what and how the policy decisions will be filtered down and implemented. The second is that the Government are still consulting on what an outcomes-focused, risk-based security regime should look like-we support that approach, by the way-so we do not know what we are going to get. We do not know how the process will work, so it is very difficult for us to comment on exactly what the benefits will be at this stage.

Q72 Julian Sturdy: Listening to what you have said, you broadly support the Bill and what has been put forward, but is there some concern that the time scale is being pushed a little too fast? Would you like more clarity before that, or are you quite happy with how the process is running?

Sian Foster: Is that with the Bill in general?

Q73 Julian Sturdy: Yes, the Bill in general, but also specifically going back to what you have just said on security, as there seems to be a lack of clarity on that.

Sian Foster: In general, the Bill is moving very quickly, but the matter needs to be addressed. We have had the same regulatory framework for almost the same length of time as my airline has been in existence. The industry and the market have changed a lot over the last 25-odd years, so there is a degree of urgency in doing this, but there are certain areas where we need more information and more discussions with the CAA and the DfT. We will be able to form our opinions in more detail in due course.

Dr Humphreys: The core of the Bill deals with airport regulation, and we fully agree on the need to reform the current regulatory system. It is long overdue, so we appreciate the speed.

Q74 Chair: Do you think that there should be economic regulation of airports, or should it be left to market forces?

Dr Humphreys: When an airport has monopoly power, it should be regulated in order to protect the interests of the users of that airport. Clearly, most airports in this country do not have monopoly power. They compete. It is our view that the three main London airports still have significant levels of monopoly power and should continue to be regulated, but we recognise that the sale of Gatwick has been positive. That leads us to conclude that our arguments over many years that the BAA should be split up were absolutely right. There has clearly been an improvement at Gatwick, but that is quite different from saying that Gatwick no longer has monopoly power. We think that it does, and, if it was not regulated effectively, it could easily misuse that power.

Q75 Chair: Do any of you have other views on the economic regulation of airports?

Paul Simmons: That is correct. What is happening is that the Bill is trying to protect the passenger in exactly the situation where there is no effective competition. Although Gatwick has been privatised, in our view, it still has strong economic power over the London market, and it needs regulation to ensure that it acts in the best interests of everyone, and particularly in the interests of the customer. That is pretty clear. We fully support the status quo.

Sian Foster: I absolutely agree with that. Practical examples demonstrate that. Gatwick is full at peak times, and Heathrow is full throughout the day. If there was the competition, we would have grown elsewhere in the UK, but the conditions at Gatwick and Heathrow are not replicable elsewhere and we need them.

David Hart: Again, I agree with Ms Foster.

Chair: Thank you very much for coming and answering our questions.

Examination of Witnesses

Witnesses: Brian Ross, Economics Adviser, AirportWatch, and John Moloney, Secretary, Department for Transport Trade Union Side, gave evidence.

Chair: Good morning, gentlemen. For our records, would you give your names and the names of the organisation that you represent?

John Moloney: My name is John Moloney. I am a civil servant, but I am here to represent three unions-Prospect, the First Division Association and PCS.

Brian Ross: I am Brian Ross. I apologise for my gravelly voice. I represent AirportWatch, the umbrella group that includes all the airport community groups around the UK and the national environmental organisations.

Q76 Chair: Mr Ross, why do you think that the CAA should be given the duty of environmental regulator?

Brian Ross: I would not go quite so far as to say that. This particular Bill is about economic regulation, and I have no quibble with that. Our concerns are very specific. Over the years, the CAA has had the discretion to allow the operators of regulated airports to invest in certain environmental measures and to allow the airports to recover the costs through airport charges. Under the Bill as drafted, it seems that the CAA will not have that discretion. Our particular concern is that the world has changed since 1985. We now have a much more competitive airline sector, with low-cost carriers looking to save every penny. Over the past 25 years the CAA has been able, quite happily and unchallenged, to allow environmental expenditure. Our fear is that, under the Bill, one of the more aggressive low-cost carriers might take the CAA to the High Court, saying that the CAA had no right to allow that expenditure; the legislation did not permit it to spend this money or at least to recover it. That is our worry.

Q77 Chair: Under the proposed legislation, what channels could consumer and environmental groups use to communicate their concerns to the CAA?

Brian Ross: I do not think that there are any formal channels. The CAA has historically operated stakeholder workshops. To be honest, it has been entirely helpful in trying to ensure that local community groups have had the opportunity to comment on proposals, consultations and so on. The new legislation does not make specific provision for that, but that is not particularly our concern. Our concern is to protect the CAA’s flexibility in the event of a legal challenge.

Q78 Chair: What is the biggest change that you would like to see in the Bill?

Brian Ross: It would simply be a supplementary duty for the CAA to "have regard to" the impact or the effect of airport operations on the environment and local communities. That supplementary duty was envisaged three years ago, when the Bill was first mooted, and exactly those words were envisaged. Strangely, when the Department for Transport published the Bill two weeks ago, the press release said that it included the environmental duty to have regard to the effect of airports upon the local environment and communities. However, it does not include that duty; I do not know why or when it came out, but it is not there.

Q79 Chair: Have you no idea why it was changed?

Brian Ross: I have a fairly good idea. When it went out to consultation, the airlines and airports resisted it strongly and they were worried that it could mean that the CAA would start to make environmental policy. That was their worry. They thought that it could lead to new restrictions upon them or new regulations, whereas our concern is simply to protect the status quo-to protect the CAA’s existing flexibility.

Q80 Chair: Mr Moloney, you have major concerns about the Bill. What are they?

John Moloney: We have a number of concerns, which I shall flesh out now, but it is important to put it in context, that at least organisationally, aviation security is now pre-Lockerbie. Pre-Lockerbie, aviation compliance teams were subsumed into general policy teams within what was then the Department of Transport. That is the current situation that we have. As you probably recall, in Lockerbie’s aftermath, it was decided to set up a special safety organisation within the Department called Transec, which has now been abolished, so organisationally we are still pre-Lockerbie. We think that putting the compliance and regulations teams into a different body will reduce the speed of response. For instance, although the compliance teams will be part of CAA, they will still be getting their directions and tasks from the Department for Transport. Whereas people can now directly order the compliance teams to do X, Y or Z, in future they will have to consult with CAA. Clearly, both organisations will have to consult at fairly senior levels, and orders will then have to be cascaded down to the compliance teams. As a result, there will be delays. There may also be conflicts between the two organisations, because the CAA might say, "We don’t think we should do this."

A good example of where we think rapid response has been possible because everything has been in the one organisation in the past was the restriction on carrying liquids on aeroplanes. I leave to one side whether people thought that was a proportionate response to the dangers involved, but, once it was decided, that was implemented in one day. The compliance teams met at half-past 5 on that day, decided precisely what they had to do and started ringing up all the operators and visited as many as they could on the day. Admittedly, there was a lot of confusion and chaos, but, nevertheless, by the end of the day everyone understood what should happen. Under the new regime, I think that that fast response would be much more difficult to arrange. Clearly, the CAA will clearly be less responsive to DfT’s instructions because that will be mitigated by having a different management team within the CAA.

As we understand the Bill, inspectors will lose the possibility of issuing what are called special directions. These are enforcement notices that can be served on operators and airlines if it is believed that there has been a gross breach of security or what have you. Currently, they are signed by a manager in the Department for Transport; it is a delegated authority from the Secretary of State. We understand that that will remain within the Department for Transport. If people in the CAA are going to seek a special direction, they will therefore have to make a formal request to the DfT; that will obviously involve delay, possibly because people may not be around and so on. Special directions could be a particular problem.

We also say in our submission that we are worried about things falling between two stools: i.e. confusion on the precise boundaries between the CAA and the DfT in the new regime. Usefully, colleagues earlier on from the airlines mentioned that they were unsure as to that boundary. Interestingly, it would seem that that applies to the CAA. In the published minutes of a meeting on 19 January, at paragraph 24, the CAA management board says: "Following the presentation,"-this is from the Department for Transport-"the Board acknowledged the need for reform"-i.e. the transfer-"but highlighted its concerns regarding clarity of roles and capabilities. The discussion centred on interactions between economic, consumer, safety and security regulation, any assurance processes that may be required, and the boundaries of the proposed CAA role(s)." It seems that the CAA, too, would have those problems.

I have a number of other concerns, but I am worried I am taking up too much time. They are associated with losing staff before the transfer. Many of the staff are long-standing civil servants who do not want to transfer to the CAA, and some will be within a few years of retiring when the transfer date comes. It may seem rather parochial, but many are concerned about losing their pension entitlements by going over to a different scheme. Indeed, many have told me that they will seek to transfer out of the compliance teams before the transfer happens. Therefore, we will lose some very experienced and dedicated staff.

Q81 Chair: Where would they move to? Would they go to a different Department?

John Moloney: They could look for roles within the Department for Transport, and as civil servants they could apply for a job, provided it is at their grade, anywhere in the civil service. They believe that they have very portable skills that would be of use to other people. They would certainly be looking at roles inside the Department for Transport itself. A number have said, "We are serving civil servants. We want to remain in the civil service." As I said, there is particular concern among those who are within a few years of retirement as to what the transfer will mean for their pensions. Rather than risking it, they will want to seek other jobs in the civil service. You probably know that the transfer date is a few years hence, so they have plenty of opportunity to transfer out if they wish.

Q82 Chair: Do you think that the transferability of pension rights is the key? If they were given reassurances on that, would they want to stay?

John Moloney: If people were told that they could remain in the civil service pension schemes, that would be a major impediment taken away from people transferring over.

Q83 Chair: On aviation security, you object to the change in responsibilities. Why is that?

John Moloney: As I said, we believe that there is no clarity about the roles. When you have two organisations carrying out what in essence now is one organisation’s task, there is always bound to be conflict and confusion. It would appear that special directions, which are enforcement orders, will remain with the Department for Transport, but the compliance teams that lead them will be in the CAA. That seems to us to be a serious disconnect. The speed of responsiveness is important. Literally, if the Secretary of State decides now on one particular security outcome-again, I leave to one side whether people think that is proportionate or not-it can be implemented in one day flat. It is a direct order to the compliance teams, and the compliance teams go out and do it. Under the Bill, however, you will get into organisational discussions-DfT to CAA at a high level-and it will then cascade down to the shop floor, which will carry out the orders. It seems unnecessarily cumbersome, burdensome and bureaucratic.

Q84 Chair: You say that you do not agree with the principle of "the user pays" in relation to security.

John Moloney: That is correct; our unions do not. We can understand it in cases such as pollution, where the polluter pays. I can understand that concept, but we are maintaining a security barrier to prevent an enemy from attacking this country. It seems to us that that is a completely different concept from dealing with somebody who pollutes the environment either by omission or deliberate act. I understand that you can say, "It’s your fault; therefore you pay." However, it seems slightly strange to say we have to maintain security because we live in a dangerous world-it is a common good that protects passengers-but that we should have to pay for it. That does not seem, in theory, to make sense. If you start applying that model across the whole of the public sector, you will get some very strange situations, with people carrying out security regulations or safety enforcement, and, in theory, everyone should pay. That does not make much sense. We think that taxation is the most efficient way of paying for that service. Obviously, it also removes a burden from industry, but, as you know, the aviation industry is continually arguing that it is overtaxed and has enough burdens as it is. We think that putting an extra burden on them would not be useful. We do not think that the principle applies at all in this case.

Chair: Thank you both very much for coming and answering our questions.

Prepared 18th January 2012