Aviation Strategy - Transport Committee Contents

1  Introduction

Aviation and connectivity

1.  The benefits of aviation are not only economic; it also enriches the lives of citizens by providing transport and trade links with the rest of the world. These benefits do not come without a price. The local and global environmental impacts of aviation are widely acknowledged and it is recognised that these must be tackled effectively.

2.  Furthermore, debate continues about precisely how much aviation contributes to the UK economy. A recent analysis, often quoted by industry, found that the aviation sector contributed £49.6 billion (3.6%) to UK GDP.[1] However, some commentators argue that that overstates the sector's contribution because, for example, exemptions from paying fuel duty and the environmental and social costs of the sector are not adequately taken into account.[2] Nonetheless, Government figures show that the UK aviation sector had a turnover in 2011 of around £53 billion, generated around £18 billion of economic output and employed over 220,000 workers directly and supported many more indirectly.[3] The aviation industry commissioned research that suggests that the total number of jobs supported (directly and indirectly) by aviation could be as high as 921,000.[4]

3.  For example, aviation supports the tourism industry. The economic benefits of inbound tourism are generally undisputed. However, questions remain over the impact of outbound tourism on the UK economy due to the so-called "tourism deficit", which relates to the difference between the amount that UK citizens spend on their trips abroad and the amount that foreign visitors spend in the UK. ABTA, the travel association, has published research on the contribution of outbound travel towards UK GDP, which it suggests shows that "the longstanding myth that outbound travel results in a 'tourism deficit' is proven to be without a footing".[5] However, Greenpeace and WWF-UK remain concerned about the potential impact of a "tourism deficit".[6]

4.  The economic benefits of aviation are further augmented by its catalytic impacts on businesses across all sectors, which are facilitated by greater connectivity.[7] The concept of connectivity, which encompasses the number of destinations served, their importance to business, and the frequency of flights, is essentially about the ease with which consumers can find the route they want at the time that suits their needs. Good connectivity can help to promote both trade and inward investment.[8] Connectivity is also important for leisure travellers as it creates a variety of route and destination opportunities.[9]

5.  The UK is already very well connected, with direct air links to over 360 international destinations.[10] However, concerns have been raised that the UK's position is slipping in comparison to other countries and that this may be having a detrimental effect on trade and investment. There are particular concerns about poor connectivity between the UK and some of the world's emerging markets, such as, the so-called BRIC and CIVETS countries.[11] Figure 1 shows that London lies behind Dubai in terms of connections to the BRIC economies. This is largely a consequence of Dubai's high level of connections to the Indian subcontinent. It also shows that while London is currently better connected than its European rivals to the BRIC economies overall, it falls behind Paris and Frankfurt in terms of connections to Brazil, Russia and China (excluding Hong Kong). London's position, in terms of its links to China, is better if Hong Kong is included, indicating that it is well connected to the financial centre in Hong Kong but less well connected to the manufacturing heartland of China.Figure 1: London's Air Connectivity to the BRIC Countries

Source: OAG data, April 2013.

6.  The consequences of poor connectivity in the UK may be that businesses consider it preferable to move their European headquarters away from London. For example, Boris Johnson, the Mayor of London, suggested that KPMG moved its European headquarters from London to Frankfurt because the latter is so much better connected with emerging markets.[12] While there are few hard examples such as this, business groups remain concerned about the prospect of the UK economy losing out in the future if connectivity is not improved through the provision of new services.[13] The Confederation of British Industry (CBI) has recently estimated that a new daily service to one of the key growth markets could generate up to £128 million of additional trade.[14]

7.  The viability of additional services to new destinations, or indeed more frequent services to existing destinations, depends upon the level of demand for such services. At most airports, the level of demand is determined by the number of potential customers based in the airport's catchment area. These customers travel "point-to-point" on flights either to their end destination or to a "hub airport" for a connecting flight to their end destination. It follows that a hub airport makes use of both its own local catchment area and also incoming customers from other airports to feed demand for services so enabling additional destinations to be served and higher frequencies of service to be offered. Hub airports operate in a way that facilitates the transfer of passengers or goods, originating from a number of different cities and countries, onto services that would otherwise not be viable if they relied solely on the catchment area around the airport itself. Nonetheless, hub airports need strong local catchment areas in order to ensure that there is always a base level of demand as there is strong international competition for transfer passengers, with airlines often competing on price to encourage passengers to use their hubs. International scheduled carriers rely on transfer passengers to provide competitive services to the world's emerging markets.[15] Hub airports therefore have a particular role in delivering air connectivity. Consequently, much of the recent debate about aviation strategy has focussed on hub airports and in the UK a concern about insufficient capacity at Heathrow, the UK's current hub airport.

Government strategy and the airport capacity debate

8.  The lack of capacity at UK airports, particularly in the south east, has been the subject of much discussion over the past five decades. For many the obvious solution has been to construct new runways to accommodate more flights. In 1971 the final report of the Roskill Commission recommended Cublington, Buckinghamshire, as the preferred site for a new four-runway airport, with a minority report favouring Maplin Sands, off the Thames estuary.[16] Maplin was chosen by the Government as the preferred site although neither airport was built. It was this failure to develop a new hub airport in the late 1960s and early 1970s that the Royal Aeronautical Society blames for the "current impasse in resolving the airport capacity crisis in the [south east] of England [and] the failure to overcome Heathrow's evident frailties as a national hub airport".[17]

9.  Following the cancellation of the Maplin project in 1974, the first Airports Policy White Paper was produced in 1978, following an extensive period of consultation.[18] This envisaged the development of both Heathrow and Gatwick as the two major international airports to meet demand over the medium term through the addition of a fourth and second terminal respectively, with subsidiary roles for Stansted and Luton. Study groups were established to consider longer term requirements which culminated in a recommendation that Stansted be developed as the third main London airport. Planning approval was granted for major development at Stansted as a single runway airport in conjunction with the publication of the second Airports Policy White Paper in 1985.[19] By 1990, the Civil Aviation Authority was recommending that at least one additional runway would be required at a London airport by 2005. The Government set up a new working party, known as RUCATSE (runway capacity to serve the south east), which reported in 1993.[20] This working group recommended that an additional runway at Heathrow would generate the highest benefits, with a second runway at Gatwick being the next best alternative. Options at the other airports were deemed to be less beneficial. This working group also recognised that "Thames estuary sites could offer important long term advantages, although they pose major problems of their own".[21]

10.  The most recent in-depth review of UK airports was carried out in preparation for the former Government's 2003 White Paper on the future of air transport, which concluded that a second runway should be built at Stansted, followed by a third runway at Heathrow subject to certain environmental standards being met, and that land should be safeguarded for a second runway at Gatwick after 2019.[22] None of these runways has been built. Prior to the General Election in 2010, the then Labour Government supported a third runway at Heathrow. The Labour Party's manifesto in the run up to the election indicated that it no longer supported expansion at any airports other than Heathrow.[23]

11.  In May 2010, the Coalition Agreement set out the current Government's position, which was to cancel the third runway at Heathrow and refuse permission for additional runways at Gatwick and Stansted.[24] In order to make better use of these existing airports, without building new runways, the Government announced the establishment of the South East Airports Taskforce. In July 2011, the Taskforce recommended a package of proposals to address punctuality, delay and resilience issues at Heathrow, Gatwick and Stansted. The package included a set of operational freedoms to allow certain tactical measures to be applied to mitigate disruption and to facilitate recovery, a performance charter for each airport to setting out the level of service that airline customers and their passengers should expect to receive, and a set of policy guidelines to optimise the utilisation of runway resource at each airport.[25]

12.  In July 2012, a year after the Taskforce report, the Government published its draft Aviation Policy Framework (APF), setting out its broader strategy on aviation, for consultation.[26] Notably, the draft APF did not itself express a view on the hub capacity issue. It did, however, note that "the main issue of contention remains airport, and particularly runway capacity".[27] The draft APF indicated that the Government would explore the options for maintaining both the UK's aviation hub status and its international air connectivity through a call for evidence later in 2012.

13.  On 7 September 2012, the Government announced that it had asked Sir Howard Davies to chair an independent commission, tasked with identifying and recommending options for maintaining the UK's status as an international hub for aviation.[28] The Airports Commission has undertaken to produce an interim report by the end of 2013, and a final report by the summer of 2015.[29]

14.  In March 2013, the Government published its final APF, which comments on a number of issues, including:[30]

  • the benefits of aviation, particularly in relation to the UK economy;
  • climate change and the global environmental impacts of aviation;
  • local environmental impacts such as noise, air pollution and surface access traffic congestion;
  • the role of the Airports Commission in relation to the capacity debate;
  • protection of passenger rights;
  • competition and the regulatory regime for airports;
  • airspace issues;
  • aviation safety; and
  • the security regime.

Our inquiry

15.  We launched our aviation inquiry on 13 September 2012, shortly after the publication of the draft APF and the Government announcement on its intention to set up the Airports Commission. We chose to look at UK aviation strategy as a whole including the role played by both hub and non-hub airports. Our terms of reference sought views on the following questions:

i.  What should be the objectives of Government policy on aviation?

a)  How important is international aviation connectivity to the UK aviation industry?

b)  What are the benefits of aviation to the UK economy?

c)  What is the impact of Air Passenger Duty on the aviation industry?

d)  How should improving the passenger experience be reflected in the Government's aviation strategy?

e)  Where does aviation fit in the overall transport strategy?

ii.  How should we make the best use of existing aviation capacity?

a)  How do we make the best use of existing London airport capacity? Are the Government's current measures sufficient?  What more could be done to improve passenger experience and airport resilience?

b)  Does the Government's current strategy make the best use of existing capacity at airports outside the south east? How could this be improved?

c)  How can surface access to airports be improved?

iii.  What constraints are there on increasing UK aviation capacity?

a)  Are the Government's proposals to manage the impact of aviation on the local environment sufficient, particularly in terms of reducing the impact of noise on local residents?

b)  Will the Government's proposals help reduce carbon emissions and manage the impact of aviation on climate change? How can aviation be made more sustainable?

c)  What is the relationship between the Government's strategy and EU aviation policies?

iv.  Do we need a step-change in UK aviation capacity? Why?

a)  What should this step-change be? Should there be a new hub airport? Where?

b)  What are the costs and benefits of these different ways to increase UK aviation capacity?

16.  We received 124 written submissions and took oral evidence on seven occasions between November 2012 and February 2013. In December 2012, we visited Frankfurt Airport in Germany, to find out more about how it functions as a major European hub and to discuss with Fraport, the airport operator, and Lufthansa, Germany's flag-carrying airline, the role of hub airports and the international challenges faced by Europe's aviation industry. The programme for this visit is published in Annex A. We are grateful for all the written and oral evidence we received and for the assistance we received in organising our visit, particularly from Fraport and the Embassy in Berlin. During the course of our inquiry, we also commissioned research from Oxera Consulting Ltd on the commercial viability of a new hub airport. This research is published in Annex B. We are grateful to Oxera for their work. Finally, we are grateful for the assistance we received in our inquiry from our specialist adviser, Louise Congdon.

17.  This inquiry builds on our related work in this Parliament, including our reports:

  • Keeping the UK moving: The impact on transport of the winter weather in December 2010, which noted capacity as a constraint on Heathrow's ability to recover from periods of closure.
  • Draft Civil Aviation Bill: Pre-Legislative Scrutiny, which looked at changes to the system of economic regulation of airports by the Civil Aviation Authority (CAA), changes to the CAA's remit, governance structure and powers, and the transfer of security operation regulatory functions from the DfT to the CAA.
  • High Speed Rail, which concluded that the Government needed to make clear how the High Speed 2 rail network fits into its wider aviation strategy.

1   Oxford Economics, Economic Benefits from Air Transport in the UK, 2011; and AS 040 [International Air Transport Association] Back

2   Q 201 [Tim Johnson]; AS 010, paras 2.3-2.4 [HACAN]; and AS 109, paras 17-18 [Greenpeace] Back

3   HM Government, Aviation Policy Framework, March 2013, Cm 8584, p 9 Back

4   Oxford Economics, Economic Benefits from Air Transport in the UK, 2011, p 4; AS 089, para 6 [Virgin Atlantic Airways]; and AS 110, para 1.3 [British Airways] Back

5   AS 048, para 15 [ABTA] Back

6   AS 069, para 2 [WWF-UK]; and AS 109, paras 21-24 [Greenpeace] Back

7   AS 039, para 7 [Foster+Partners] Back

8   AS 011, para 7 [Royal Aeronautical Society] Back

9   Q 108 [Andrew Cooper] Back

10   AS 087, para 6 [Department for Transport] Back

11   BRIC refers to Brazil, Russia, India and China; and CIVETS refers to Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.  Back

12   Q 764 [Boris Johnson] Back

13   Qq 425-429 [John Dickie; Stuart Fraser; Rhian Kelly; Mike Spicer; and Corin Taylor] Back

14   Confederation of British Industry, Trading Places, February 2013 Back

15   Q 19 [Sian Foster] Back

16   House of Commons Library, Aviation: proposals for an airport in the Thames estuary, 1945-2012, SN/BT/4920, last updated on 20 July 2012 Back

17   AS 011, para 3 [Royal Aeronautical Society] Back

18   Secretary of State for Trade, Airports Policy, February 1978, Cm 7084  Back

19   Secretary of State for Transport, Airports Policy, June 1985, Cm 9542 Back

20   Runway Capacity to Serve the South East: A Report by the Working Group, July 1993 Back

21   Runway Capacity to Serve the South East: A Report by the Working Group, July 1993, Executive Summary, para 13 Back

22   Department for Transport, The Future of Air Transport, December 2003, Cm 6046 Back

23   The Labour Party Manifesto 2010, p 1:8 Back

24   HM Government, Coalition Agreement: our programme for government, May 2010, p 16 Back

25   Department for Transport, South East Airports Taskforce: Report, July 2011, p 7 Back

26   Department for Transport, Draft Aviation Policy Framework, July 2012 Back

27   Department for Transport, Draft Aviation Policy Framework, July 2012, p 4 Back

28   Written Ministerial Statement, Independent Airports Commission - increasing international competitiveness of UK airlines and airports, 7 September 2012 Back

29   Airports Commission, Guidance Document 01: Submitting evidence and proposals to the Airports Commission, February 2013 Back

30   Department for Transport, Aviation Policy Framework, March 2013, Cm 8584 Back

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Prepared 15 May 2013