Transport CommitteeWritten evidence from the Thomas Cook Group (AS 67)

Overview of Thomas Cook Group

This response is submitted on behalf of the Thomas Cook Group (TCG), the second largest vertically integrated leisure travel group in the UK. TCG is a tour operator, selling primarily air holidays through its Thomas Cook Tour Operations Ltd, Thomas Cook Retail Ltd, Thomas Cook Scheduled Tour Operations Ltd, Gold Medal Travel Ltd, and Elegant Resorts Ltd businesses, and is licensed in total for 5.5 million ATOL protected seats.

Furthermore, the Thomas Cook Group owns and operates Thomas Cook Airlines Ltd, which currently has a fleet of 35 aircraft on the UK register. That airline is a charter, or leisure airline, selling the majority of its seats to tour operators, particularly those in the Thomas Cook Group, to create packages. It does however sell approximately one million round trip seats to passengers directly. Virtually all those sales are used as the basis of holidays for UK citizens.

TCG operates a wide variety of business models, which includes a bedbank, trading as Hotels4U and Medhotels, selling accommodation both direct to the public and through third party retailers. More notably, Thomas Cook is one of the largest travel retailers in the UK, with approximately 1100 shop premises through its Thomas Cook and Co-Op Travel brands, a large call centre business and an online travel agency; all of whom sell significant numbers of air based holidays and other flights.

The Thomas Cook Group, whilst based in the UK, is one of Europe’s largest travel businesses, and also brings holidaymakers to the UK from other markets across Europe, as well as from Canada.

As a result of all the above issues, UK aviation strategy is of fundamental importance to the Thomas Cook group, and we feel it appropriate to answer the questions posed by the Committee.

We would also comment that the Thomas Cook Group is a member of ABTA, and we have had the benefit of reviewing the ABTA response to the Committee. We would support the submissions made by ABTA, and do not propose repeating their points directly within this submission.

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

We believe that there are a number of key principles which stand behind aviation policy. As our interest is primarily in tourism, these principles include points specific to our sector.

The UK is an island nation. As such, the population will want and need to travel, both to trade and for leisure purposes.

Economic growth will lead to increased demand for travel. As a corollary, increased air travel can be a contributor to economic growth.

Furthermore, the predicted population growth will lead to increased demand for travel. It is noted that ONS predict that the UK population will grow from 61.4 million in 2010 to 70.6 million in 2030.

The population is increasingly cash rich and time poor. As a result, rail is only an appropriate substitute for air for the majority of travellers if there are reasonably similar timescales involved. As an example, air can easily be replaced by rail between Madrid and Barcelona, with a city to city journey time of three hours. However, it is unlikely to be substituted by rail for a journey from Madrid to Paris, a city to city journey time of 12 hours.

Tourism is regarded by most countries (including the UK) as a driver for growth. Domestic tourism in the UK will always be constrained by the weather, and as such, there will continue to be a desire to travel to warmer destinations.

Tourism, whether outbound or inbound, has a significant dependence on direct aviation links, and a reduction in those links is likely to damage tourism arrivals at both ends of the route.

We believe that it is impossible to predict with any degree of certainty any major cultural or socio-demographic shifts which may occur over the next 15 years. We would also suggest that it is unlikely that any government will be unable to predict major changes in this timeframe. Assumptions should therefore be made that travellers will continue to behave in similar fashions to how they behave currently, subject to our earlier assumptions regarding broad economic growth.

We agree and accept the need for trade offs between aviation, the environment and the localism agenda. We would argue that there should be a genuine balance between these 3 issues. Within that trade off, we agree that aviation should address its environmental impacts. We would suggest that the primary factors impacting on aviation’s ability to address those impacts are:

Airlines’ own fuel burn: processes, weight and load factor.

Type of fuel burnt: move towards more sustainable fuels—biofuels etc.

Air traffic control: routings etc: local and international.

Aircraft design and construction.

We believe that it is essential that there is political consensus on future aviation strategy. At present, aviation has become a political football. Due to the length of time and level of investment required to address infrastructure issues in the UK, an agreed framework needs to exist and to be supported by all parties.

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

As we have commented, the UK is an island nation. Connectivity with the rest of the world is an essential pre condition for trade generally. Connectivity should not be seen simply as important to the aviation industry, but essential to the whole economy.

Furthermore, leisure time has a significant social benefit in motivating individuals to work more efficiently. Travel is a key component of leisure, and cannot be underestimated in creating a sense of economic wellbeing.

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

We believe that this question has been comprehensively answered by ABTA in their response. As our business is primarily in the tourism sector, we would wish to comment on the contribution made by the outbound tourism sector to the UK economy; as many of these points are often overlooked.

Employment. Outbound tourism is a substantial employer of UK citizens. Our own Group employs more than 15,000 UK staff within our airline, tour operating and retail businesses. Tourism employees, by using their spending power also directly support numerous other sectors, and that there is therefore a multiplier effect of those jobs. Furthermore, employees in the aviation sector frequently have above average salaries, as well as very specialized skill sets, bringing additional financial and other benefits to the UK economy.

Tax revenues. We, as well as other outbound tourism businesses make a very substantial contribution to the tax revenues of the UK. As this response will be in the public domain, we would not wish to specify the amounts in detail, but would be very happy to outline in more detail our fiscal contribution to the UK.

Social and cultural benefits of tourism. It has been demonstrated by numerous studies that tourism contributes to the well-being of the tourist, as well as making a contribution (generally positive) in the destinations to which tourists travel. Tourism by air enables tourists to travel to more distant destinations, and therefore provides additional social and cultural benefits.

Contributions to destination markets. It is clear that tourism provides a significant benefit to destination markets. Many countries are highly dependent upon international inbound tourism. The UK outbound tourism market has historically been one of the largest in the world, and as such, has driven significant wealth into what would otherwise often be poor nations, dependent upon aid from the UK and other developed nations to support their economies. We believe that the income brought by tourism is preferable for many reasons to under-developed economies to aid, and as such, as well as providing a benefit to the UK, in potentially reducing its international aid bill, the benefits to the destinations themselves are significant. We would highlight in particular the massive economic impact of tourism on the economies of the Caribbean, ranging from 24% of the total economy in Jamaica to 74% in Antigua and Barbuda

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

APD has an impact on the UK economy generally, not purely on the aviation industry. The UK has the highest levels of aviation taxes in Europe. We do not object to the principle that aviation should meet its externalities, and aviation taxation, such as APD is a means of doing this. However, we believe that APD significantly over-recovers the external costs and impacts of aviation, and there is little or no investment by government in addressing the external costs. It appears current government policy is somehow to treat APD as a simple revenue raiser without recognising its purpose and effect.

In our business, we have noted that the current high levels of APD do impact on consumer behaviours. Holidaymakers are presently encouraged to travel to wealthier economies like the USA in preference to, for example, the Caribbean due to the price differential created by APD levels. As a charter airline, the levels of APD have undoubtedly impacted on our long haul flying programme, which has been significantly reduced due to falling demand created by increased costs in the past five years.

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

Improving the passenger experience should be an essential function of all parts of the aviation sector, including government, which intervenes at numerous points in the operation of aviation—border control and security, as well as general regulation of airports, aviation and airspace being the key ones. We do not believe that this is a strategic response, but simply part of the normal functioning of the market. “Better not bigger” is a political slogan, not a strategy towards aviation.

It should be noted that when an airport is operating at or near full capacity, there is minimal resilience available in the event of problems. As a result, bad weather or other problems can have a disproportionately adverse impact on overcrowded airports, to the point where the passenger experience becomes intolerable. We would therefore suggest that the expansion of airport capacity will in itself improve the overall passenger experience.

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

Aviation is a key part of the transport mix in the UK—both as a means of international travel, and in appropriate cases, within the UK. We do not, for example, see HS2 as any form of substitute for aviation. It will be built primarily to improve inter-connectivity within the UK, and will not act as a substitute for passengers travelling from, say, the North of England to Spain. We do however believe that governments need to do more to ensure that there is effective inter-connectivity between different modes of transport.

2. How do we make best use of existing aviation capacity?

Our experience of travel, which goes back over 170 years, is that customers generally look for convenience and ease of travel. Given the choice, most of our customers would prefer to fly from their local airport to their destination, whether that be for leisure or business purposes. However, there will never be sufficient demand from all parts of the country to all destinations to sustain operations on that basis. As such, whilst direct routes from regional airports to many short haul destinations, both for business and for leisure may be appropriate, inter-continental flights may only be sustainable from a limited number of departure points, and potentially a single hub airport in the UK. Logically, any hub airport would need to be located in close proximity to London, which is the trading centre of the UK, as well as having a significant proportion of the population, and being the major destination of choice for most overseas tourists. 1

We have already made reference to our business being primarily leisure travel. We have noted with increasing concern suggestions emerging from governments and other commentators that leisure is somehow secondary in importance to business travel. We have highlighted in paragraph 1a the contribution which outbound tourism makes to the economy, and we do not believe that there should be any discrimination between air travel for different purposes, and in particular, we would emphasise that leisure air travel should be given the same importance as business travel.

2(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?

We believe that government is failing to address this issue at present. South Eastern airports cannot be seen as readily inter-changeable. Each airport does serve distinct markets, albeit with some overlap. As we have indicated above, we do believe that there needs to be a focus on a single hub for inter-continental travel, to deliver economies of scale. Previous attempts by both the UK and other governments to manage demand by directing traffic to certain airports have failed—whether that be by restricting US traffic, and forcing US carriers to operate to Stansted or Gatwick, or by forcing US traffic in Scotland to operate through Prestwick. As soon as restrictions are lifted, traffic naturally migrates to the most relevant airport, whether that be Heathrow or Glasgow. Similarly, the massive costs involved in constructing some form of link between Heathrow and Gatwick seem inappropriate, since they are simply linking two already full airports. The best means of improving passenger experience and airport resilience is to have sufficient airport capacity available to ensure that airports are not operating at more than 90% occupancy. As we have indicated earlier, if aviation can meet its environmental costs, it should be allowed to expand, even if that means constructing new runways or indeed new airports.

2(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?

In general, there is not currently an excess of demand over supply for airports outside the South East. With the growth in population and gradual change in demographics, this may not be the case in 20 to 30 years time. We believe that the same principles to growth should be applied to other airports in the UK, namely that growth should be allowed in order to meet demand, provided that the environmental impacts of that growth can be met. It should be borne in mind that if there is unsatisfied demand for air travel from regional airports, this will generally be met by the affected customers using overland transport to get to an alternative airport where the demand can be met.

The major change required in this area is that the UK planning system needs to recognise that major infrastructure projects need to be addressed through the planning process in a more effective way than is currently the case. The planning process for Heathrow Terminal 5 took almost 15 years to complete. Whilst the planning process for the second runway at Manchester Airport was considerably shorter, it still took eight years from the start of the process to the completion of the second runway.

As part of the overall planning process, we would urge that authorities recognise the importance of safeguarding land in relevant areas, so that airport expansion is not prevented due to residential or other buildings being erected in key areas for expansion.

2(c) How can surface access to airports be improved?

We support the current practice of encouraging air travellers to reach their departure airport using public transport. However, the quality and availability of public transport to different UK airports varies enormously. We would suggest that there needs to be far better integration of public transport generally within the UK. All airports should, as a minimum have a direct rail connection to the main city or cities which they serve. Even then, we would highlight that families travelling on holiday frequently do not find it easy to use public transport to get to their departure airport—attempting to take a family with young children and luggage on a train can be challenging! Improvements to train rolling stock would probably be needed to provide sufficient space for passenger baggage. We are not convinced that there is political will to invest to this extent in rail and other surface access infrastructure.

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

We believe that the most significant constraint to increasing aviation capacity is a political one. As we have indicated in our opening section, we understand and agree with the need to balance the needs of aviation and travellers with both the environmental and the localism agendas, particularly around the issue of noise. However, we believe that due to the long lead times involved, as well as significant investment decisions required, simply putting off making difficult and potentially politically damaging decisions does not constitute a strategy. If governments genuinely believe that air travel needs to be constrained, then there is a need for this to be explained clearly to the electorate. We do believe that there needs to be political consensus around aviation strategy.

As a related issue, available space in the UK acts as a very significant constraint on aviation capacity expansion. It is difficult to locate or expand an airport facility anywhere in the south east without affecting a significant number of people, which would presumably explain the attractiveness of proposals for Thames Estuary airports, as the local disruption would be smaller.

3(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?

3(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?

We are unclear whether government has genuinely made any proposals in relation to either noise or the environmental impacts. We acknowledge the concept of “noise envelopes” and agree that this concept may be used to address the impacts of noise.

Government has worked with the aviation industry for a number of years in the Sustainable Aviation initiative.2 Thomas Cook is an active participant in that initiative, which is a long term strategy which sets out the collective approach of UK aviation to tackling the challenge of ensuring a sustainable future for the aviation industry. Both within that initiative, and within the aviation industry more widely, significant steps are being taken to address the environmental and noise impacts of aviation. We believe that those steps are having an impact, and will continue to do so. It should however be acknowledged that as an international industry which is subject to international, inter-regional, national and local regulation, there are inevitably differing standards and approaches, and there is not always consistency of delivery. Changes also require significant investment which can take time to come to fruition. We would however commend the Sustainable Aviation initiative as an outstanding example of attempting to address these concerns—and would urge the Committee to invite a representative of that initiative to address the Committee in their evidence sessions.

3(c) What is the relationship between the Government’s strategy and EU aviation policies?

We recognise that despite political concerns as to the extent of EU influence, the UK has generally been very supportive of EU initiatives, and has enthusiastically embraced legislative and other requirements from Brussels. Aviation is an international industry, and as such, international solutions do have to be found to the challenges created. We strongly support the proposals to create a Single European Sky, and believe that if adopted, this should allow for far greater co-ordination of Air Traffic management across Europe. We welcome the UK strategy in supporting this initiative.

We have also consistently supported the concept of including aviation within the EU Emissions Trading Scheme. We are concerned at the current political impasse apparently reached between the EU and other nations, and believe that political solutions need to be found to this issue. The UK, as one of the major air hubs of the world, is well placed to encourage appropriate solutions.

19 October 2012

4. Do we need a step change in UK Aviation capacity? Why?

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

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

As we have commented in our opening remarks, economic growth and population growth will lead to increased demand for aviation. Provided that growth can be met within the constraints of the environmental and other concerns, then we believe that there is a need for a step change in UK aviation capacity. The alternative would appear to be to impose some form of rationing on travel, and this runs the risk of either creating counter-intuitive behaviours for British citizens—such as forcing citizens of the South East to travel overland to airports elsewhere in the UK, creating a different, but still significant environmental impact, or of driving economic activity out of the UK altogether.

It is our belief that additional capacity is needed in the UK to meet actual current, as well as future demand. We question whether the UK can genuinely sustain more than one hub airport, and as such, if the step change involves constructing a new hub airport, whether in the Thames Estuary or elsewhere, then it is inevitable that the status and purpose of Heathrow would need to change. We would be surprised if Heathrow were to remain open if another airport were constructed. It should be borne in mind that this would impact on employment in the immediate vicinity of Heathrow, and more widely. We have noted data contained in a report produced by Optimal Economics for Heathrow Airport,3 which shows that in addition to the 76,600 staff employed directly at Heathrow on airport, and further 7,700 employed off airport, there is further indirect and induced employment in the London area of more than 52,000 other employees. Furthermore, it may be noted that a significant number of businesses have chosen to locate themselves in West London or in the Thames Valley corridor due to good transport links. An airport constructed in another area, such as the Thames Estuary would therefore involve a very significant shift in the working population, the consequences of which should not be underestimated.

We have no further data to add on potential costs and benefits of these options, but would simply reiterate our earlier point that aviation generally drives economic activity, and failure to meet demand would undoubtedly suppress some of that economic activity.

Submitted on behalf of the Thomas Cook Group plc
By Andrew V Cooper
Director of Government and External Affairs

19 October 2012