Aviation Strategy - Transport Committee Contents

5  Airports outside the south east

87.  There is ample airport capacity outside the south east of England to meet demand for the foreseeable future and the use of this capacity is set to increase over the coming decades.[223] Where possible, passengers favour travelling from their local airport.[224] In this chapter we consider how best to support airports outside the south east and encourage growth in the services they offer.

Developing new routes

88.  We were told by witnesses that there is great demand for more direct air services from airports outside the south east and that the current lack of connectivity from these airports was damaging local businesses.[225] However, as we previously stated, airlines are commercially driven enterprises and will operate services only where there is a viable market.[226] It was suggested that airlines did not consider routes to emerging markets from airports outside the south east to be attractive.[227] Sian Foster, from Virgin Atlantic Airways gave us an example to illustrate this point. She explained that, according to CAA data, 90,000 people a year fly between Manchester and Hong Kong. There is no direct route, so these passengers are probably travelling through Heathrow or a foreign hub airport. A direct route, using Virgin's smallest aircraft would have a capacity of approximately 175,000 seats per annum. Ms Foster told us that a load factor of 80% would enable the airline to break even and that given, the shortfall in the number of passengers, this route would not be commercially viable.[228] However, Emma Antrobus, from the Greater Manchester Chamber of Commerce, told us that there was evidence that "around 200,000 passengers from the north west flew to Hong Kong last year".[229] Clearly, their evidence of passenger journeys from across the north west, rather than solely from Manchester Airport, makes the Manchester to Hong Kong direct route look more commercially viable. There is a potential role for local authorities and Local Enterprise Partnerships to ensure that there is robust research on demand for new routes and to ensure that this is communicated to airlines.

89.  While demand from the UK is important, Mike Spicer, from the British Chambers of Commerce (BCC), reminded us that for a route to be financially viable, there has to be demand at both ends. He told us that "it is not just about British businesses and British travellers looking to go overseas; there has to be a reciprocal demand from the other end".[230] It was acknowledged that through improved marketing, awareness could be raised about airports outside the south east—such as Birmingham, Manchester, Liverpool, East Midlands or Bristol Airports—which might make them more attractive to foreign visitors.[231] Birmingham Airport recently suggested that the Government should actively support and market airports outside of the south east by designating them as "National Airports", in order to assist them in attracting new routes.[232] Jonathan Moor, Aviation Director at the DfT, assured us that the DfT spends a lot of time promoting links to airports outside the south east.[233] We recommend that the Government take a more active role in promoting airports outside the south east, however, this seems to be at odds with the DfT prioritising the views of British based airlines who have objected to new international routes to our regional airports.[234]

90.  We were keen to find out how else the development of new routes from airports outside the south east might be encouraged. The Scottish Chambers of Commerce (SCC) told us that the Scottish Air Route Development Fund, operated by the Scottish Government until 2007, had provided valuable support to airlines for the development of new routes. Garry Clark, from the SCC, told us that the Fund had been axed in the belief that it would have breached European state aid rules, but the Scottish Government was looking into alternative options that would be compliant with European regulations.[235] We also heard that changes to aviation taxes, particular Air Passenger Duty (APD), might also be used to encourage new routes—we return to this subject later in our report.

91.  The commercial viability of a new route does not guarantee that a new service will be introduced. The provision of international air services has traditionally been governed by bilateral air service agreements, which are essentially trade treaties between Governments that might, for example, cover "fifth freedom rights" relating to whether foreign airlines can land in the UK and then fly on to another country. Manchester Airports Group (MAG) suggested that the restrictions inherent in these agreements would "not be in the best interests of passengers or in the interests of rebalancing the UK economy and making best use of existing capacity".[236] MAG suggested that UK airlines are particularly influential in the negotiation of bilateral agreements.[237] Andrew Harrison, CEO of MAG, told us that airports outside the south east are more reliant on foreign airlines for long-haul connectivity and therefore the fact that a UK airline might be influencing the negotiations "puts a third party's not unbiased view into the pot".[238] However, Mr Moor assured us that bilateral agreements were generally not a constraint on access to UK airports. He explained that the fifth freedom rights described above have been available for regional airports for a number of years. He added that there is currently only one route taking advantage of this: a Pakistan International Airlines flight, which flies from Islamabad to Manchester and then on to New York. Mr Moor indicated that other similar services have not been introduced for commercial reasons.[239]

92.  An alternative approach would be to liberalise air service agreements and thereby move towards an "open skies" policy. Witnesses acknowledged that an open skies policy might have some advantages but that it could also result in the UK "giving away" its negotiating rights.[240] The Government's current approach is set out in its Aviation Policy Framework:

We are proposing […] to offer bilateral partners open access to airports outside the south east in order to facilitate inward investment in new routes and extra choice for business and passengers without necessarily having to secure reciprocal access for UK airlines to the airports of the other country.

The granting of such rights would be subject to a case-by-case consideration within the context of the current position in the UK's bilateral aviation relationship with the country concerned (for example, we might not grant such rights if there were concerns that there was not a level competitive playing field in the market, such as if it were argued that the airline in question was in receipt of state aid that was distorting competition).[241]

93.  We welcome the Government's moves towards further liberalisation of air service agreements. However, we question whether the current approach goes far enough in reducing the barriers faced by airports outside the south east that are trying to secure new routes and still leaves the door open for UK airlines to restrict access by claiming unfair competition. An open skies policy which allowed airlines from foreign countries to land and pick up new passengers to a third destination would make some routes commercially viable which they would not be on a point-to-point basis. There are arguments for the introduction of an unrestricted open skies policy outside the south east, covering both point to point services and fifth freedom rights, and we recommend that the Airports Commission assess the impact that such a policy would have.

Connectivity through hubs

94.  In the absence of direct routes, passengers using airports outside the south east have little choice but to fly to a hub airport and transfer onto a connecting flight to their desired destination. Andrew Haines, from the CAA, told us that this often involves connecting through international hubs rather than a UK hub.[242] Many of the long-haul services that operate from airports outside the south east are in fact supplying transfer traffic to overseas hubs, such as Dubai.[243] Such connections were considered to be helpful in terms of providing connectivity for business and leisure passengers in these areas.[244] However, there are also some potential negative impacts of relying on hubs overseas. For example, as we previously noted, the use of overseas hubs could generate unnecessary emissions.[245] Moreover, Mr Clark suggested that passengers arriving at the UK hub in London were more likely to connect onwards to visit other parts of the UK.[246]

95.  Due to current capacity constraints at the UK's hub airport, connections between UK airports and Heathrow are scarce. For example, the number of seats between Glasgow and Heathrow has more than halved since 2000 and Liverpool Airport lost its flight links with London in 2007.[247] We were told by Derek Provan, from Aberdeen Airport, that demand from his region to Heathrow was greater than demand for travel to all European hubs put together.[248] In the absence of access to the UK's hub, Flybe and Manchester Airport have established an innovative 'regional hub' solution. Flybe has optimised its scheduling at Manchester to allow passengers travelling from other regions to access other air services offered by the airport, thereby providing greater connectivity through Manchester, rather than through Heathrow.[249] However, Manchester does not provide access to many of the emerging markets that a classic international hub airport, such as Heathrow, can offer. Mr Provan suggested that with increased capacity at Heathrow, it might be possible to "carve-out" some slots for airports outside the south east.[250] The Royal Aeronautical Society agreed that there was "a case for a limited number of protected slots for feeder services into Heathrow and possibly Gatwick - particularly from poorly served regions including the South West and Scotland".[251] However, the CAA identified two problems with this approach. Firstly, liberalisation of air transport across Europe means that it is not possible to restrict access on the basis of either destination or nationality of carrier and there are therefore "very clear limitations within European legislation on how you can use public service obligations and so on".[252] Secondly, restricting how scarce capacity is used at a particular airport could well have unintended consequences, such as reducing the number of passengers using the airport.[253] He concluded that this approach would be undesirable.[254]

96.  Transferring through overseas hubs provides customers in regions outside the south east with connectivity that they cannot at present achieve through the capacity constrained UK hub airport. We hope that as capacity increases at the UK's hub airport, connectivity between London and other UK regions improves. In the short-term, the Government should investigate whether it would be possible—within the framework of current European regulations—to protect slots at Heathrow for feeder services from poorly served regions.

Surface access

97.  Good surface access is crucial to ensure that airports outside the south east are more attractive both to potential passengers and to the airlines providing services. We were told that road and rail links to the main airports outside the south east were generally quite good but that there was room for improvement.[255] In particular, the development of the HS2 network was considered by some to be a "game changer" with the potential to transform the way people are connected around the country.[256] The network brings Birmingham Airport and Manchester Airport much closer to London and as we previously noted, it could potentially relieve some capacity at the crowded south east airports.[257]

Economic regulation

98.  Since the publication of our recent report, Draft Civil Aviation Bill: Pre-Legislative Scrutiny, we have maintained our interest in the system of economic regulation of airports by the CAA. Charges levied by the CAA on airports help it to fund its regulatory activities. These charges vary for "designated" (Heathrow, Gatwick and Stansted) and "non-designated" airports. Designated airports are deemed to have market power and, as such, could increase charges to airlines to the detriment of consumers. In contrast, non-designated airports operate in competitive markets, where airlines often hold the market power and can negotiate lower charges. During our inquiry into the then draft Civil Aviation Bill, Mr Haines assured us that despite the changes to the regulatory regime, the CAA was "looking to reduce its costs and burden to industry".[258] However, since then we have heard concerns, particularly from Bristol and Newcastle Airports, that the CAA has proposed to increase its charges even to non-designated airports.[259] We raised this with the CAA and we were told that:

Overall, the main charges we are proposing for 2013/14 are held at current levels, which represents a reduction in real terms. However, some specific charges are being lowered whilst others are being raised. The increase in non-designated airport charges […] has been proposed to reduce the cross-subsidy that this area of the industry has benefited from over a number of years. To this end, we also anticipate a further increase in 2014/15 to fully eliminate the cross-subsidy. Historically, the cross-subsidy has been paid by airlines, which also operate in a competitive market.[260]

Mr Haines explained that at the time he answered our question in relation to the draft Civil Aviation Bill, he had responded honestly on the basis of the general direction of CAA charges, and that the disaggregated fees by airport designation type had at that time not been considered.[261] The CAA's charging proposals are currently subject to consultation.

99.  We are disappointed to hear that the CAA proposes to increase charges for non-designated airports, particularly given that we were previously assured that the CAA was looking to reduce its costs and burden to industry. We consider that higher charges for these airports risk making them less attractive to airlines if passed on or, more likely, impact on their ability to operate profitably. We recommend that the CAA reconsider the need to impose these charges.

223   Paragraph 22, table 3 Back

224   Q 388 [Andrew Harrison] Back

225   Q 456 and Qq 460-461 [Jerry Blackett]; Q 457 [Emma Antrobus] Back

226   Paragraph 32; Q 14 [Simon Buck]; and Q 15 [Sian Foster] Back

227   Q 366 [Andrew Haines] Back

228   Q 15 [Sian Foster] Back

229   Q 469 [Emma Antrobus] Back

230   Q 439 [Mike Spicer] Back

231   Q 471 [Jerry Blackett]; AS 055, para 25 [Bristol Airport Ltd]; AS 086, para 3.18 [Birmingham Airport]; and AS 089, para 21 [Virgin Atlantic Airways] Back

232   Birmingham Airport, Don't put all your eggs in one basket: A challenge to aviation orthodoxy, June 2012, p 19 Back

233   Q 839 [Jonathan Moor] Back

234   AS 044A [Manchester Airports Group] Back

235   Qq 474-475 [Garry Clark] Back

236   AS 044A [Manchester Airports Group] Back

237   AS 044A [Manchester Airports Group] Back

238   Q 397 [Andrew Harrison] Back

239   Qq837-839 [Jonathan Moor] Back

240   Q 381 [Andrew Haines]; and Q 480 [Paul Gilbert] Back

241   Department for Transport, Aviation Policy Framework, Cm 8584, p 24 Back

242   Q 290 [Andrew Haines] Back

243   Q 88 [Dale Keller] Back

244   Q 393 [Paul Kehoe]; Q 394 [Andrew Harrison]; and Q 395 [Robert Sinclair] Back

245   Paragraph 38 Back

246   Q 490 [Garry Clark] Back

247   Q 414 [Craig Richmond]; Q 459 [Garry Clark]; and AS 063, para 30 [Liverpool Chamber of Commerce] Back

248   Q 412 [Derek Provan] Back

249   AS 094, para 2d [Flybe] Back

250   Q 412 [Derek Provan] Back

251   AS 011, para 22 [Royal Aeronautical Society] Back

252   Q 305 [Andrew Haines]; and Q 357 [Andrew Haines] Back

253   Q 357 [Andrew Haines] Back

254   Qq 357-358 [Andrew Haines] Back

255   Q 495 [Jerry Blackett]; Q 496 [Emma Antrobus]; AS 038 [Newcastle International Airport Ltd]; and AS 055, para 23 [Bristol Airport Ltd] Back

256   Q 406 [Paul Kehoe]; Q 476 [Jerry Blackett]; and Q 477 [Emma Antrobus] Back

257   Paragraph 84; Q 406 [Paul Kehoe]; and Q 476 [Jerry Blackett] Back

258   Transport Committee, Thirteenth Report of Session 2010-12, Draft Civil Aviation Bill: Pre-Legislative Scrutiny, HC 1694, Ev 20 Back

259   Qq 399-401 [Robert Sinclair]; Qq 422-423 [Graeme Mason]; and AS 055A [Bristol Airport] Back

260   Qq 295-301 [Andrew Haines]; and AS 075A [Civil Aviation Authority] Back

261   Q 301 [Andrew Haines] Back

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Prepared 15 May 2013