Transport CommitteeWritten evidence from Heathrow Airport (AS 84)

Introduction

1. Heathrow Airport welcomes the Committee’s inquiry into the Government’s aviation strategy and we are pleased to submit our comments for the Committee’s consideration. We would welcome the opportunity to present oral evidence to the inquiry should the Committee wish to invite us to do so.

2. This submission is focussed on aviation capacity and the importance of a hub airport to international connectivity. We would of course be happy to provide additional information on any other issues if this would be helpful to the Committee’s inquiry.

Aviation’s Role in the UK Economy

3. Flying is of real value to the UK, for the economy, for society and for consumers. Aviation is Britain’s link into the global marketplace. It supports billions of pounds of British exports and thousands of jobs by giving British businesses direct access to markets, customers and expertise worldwide. The UK aviation industry is a British success story. For the last fifty years, the UK has been at the heart of global aviation and today aerospace is the UK’s second largest export.

4. More than 326,000 people in Britain are directly employed in the aviation sector; 76,500 people work at Heathrow alone, with 22% of jobs in local boroughs based at the airport. A further 100,000 jobs are indirectly supported by the airport. The new Terminal 2 will create 32,000 construction jobs over the lifetime of the project.

5. Furthermore, over 345,000 people across the UK rely on the supply chain from aviation for their jobs. The supply chain for Heathrow’s new Terminal 2 stretches across the UK, with multimillion pound contracts awarded in every region of Britain, including steel from Lancashire, a roof from Merseyside, electrics from Wolverhampton and concrete from Yorkshire.

6. Aviation plays a central role in international trade. There is a direct relationship between frequent air connections and improved volumes of trade and investment. UK businesses trade 20 times as much with emerging market countries that have a daily direct flight to the UK as they do with those countries that do not1.

7. According to HMRC, the value of goods shipped by air freight between the UK and non-EU countries is around £116 billion, or 35% of the UK’s extra-EU trade by value. In recent times the UK’s manufacturing sector has evolved to concentrate on high skill, high value-added goods which are increasingly transported by air. 62% (by value) of all UK air freight passes through Heathrow, equivalent to goods worth around £35 billion a year. 55% of the UK’s exports of manufactured goods to countries outside the EU are transported by air.

8. The UK has the sixth largest tourism industry in the world and the Government has made growing inbound tourism a priority for this parliament. In 2008, overseas visitors to the UK arriving by air contributed £14 billion (86%) of the total of £16.3 billion spent by all overseas visitors. Of these approximately 75% entered the country through one of the airports in the London area. VisitBritain’s recent consultation on Britain’s tourism strategy argues that “new airport capacity in the south east is essential to accommodate tourism growth and ensure that Britain remains a competitive destination for airlines and their passengers”2.

9. Heathrow welcomes over four million long-haul visitors a year who spend £4.4 billion per year in the UK. A further 2.5 million transfer passengers chose to stopover in London, spending on average more than £500 each per visit.

10. The aviation sector is also a significant contributor to the public purse, as well a significant source of private funding for national infrastructure. A report published last year by Oxford Economics found that the UK aviation industry pays over £8.6 billion in tax each year—£6.7 billion through aviation firms and employees, and a further £1.9 billion through Air Passenger Duty.

The Importance of International Connectivity and Hub Airports

11. It is encouraging to see that the Government recognises the importance of a hub airport and the unique role that Heathrow plays in terms of the UK’s international connectivity. As the UK’s only hub airport, Heathrow provides Britain with a global route network of direct, fast and frequent connections to cities around the world. It has 75% of the UK’s long-haul flights, including its only connections to key business centres like Shanghai, Tokyo and Mumbai, and emerging cities like Sao Paolo, Bangalore and Mexico City. Seven out of the top ten business routes in the world currently have Heathrow at one end.

12. This scale of international connectivity cannot be provided by point-to-point airports. Hub airports are not simply larger versions of an ordinary airport; they operate in a different way. There is not enough demand in a local market (even in London), nor is the demand sufficiently constant day by day and month by month, to sustain a daily flight to economically important destinations such as Bangalore or Chennai. Airlines overcome this by pooling demand from a number of local destinations at a hub airport. Edinburgh’s, Belfast’s and Newcastle’s businesses alone might not be able to sustain demand for a daily flight to Mexico City or Sao Paulo but by pooling that demand from around the UK and Europe at Heathrow, airlines can keep direct flights to these destinations viable throughout the year and on off-peak days.

13. As an example, outside of Heathrow, only one airport in the UK had a direct scheduled flight to India. Birmingham Airport used to operate one flight a day to Delhi (it was withdrawn by Air India in 2009). This was driven by a particular local demand and was a typical point-to-point service. In contrast, Heathrow operates 123 flights a week to six cities across India.

14. Heathrow offers at least one daily flight to 82 long-haul destinations. 60 of those routes have between 15% and 50%+ transfer passengers. If airlines lost the revenue from those passengers, frequent flights to those destinations would not be sustainable. Some of the destinations most at risk would be Hyderabad (80% transfer traffic), Chennai (73% transfer traffic) and Mexico City (61% transfer traffic).

15. As the Government’s Draft Framework notes, the future of the UK will continue to be shaped by the effectiveness of its international transport networks.

16. Britain’s connectivity needs are changing and links to the BRIC economies are becoming increasingly important. The eight largest Emerging Markets will account for more than half of worldwide GDP growth over the next ten years. We are faced with choices about how best to structure Britain’s economy for this future.

17. The UK is currently lagging behind European competitors in terms of BRIC connectivity. Paris and Frankfurt already boast 1,000 more annual flights to the three largest cities in China than Heathrow. Passengers wanting to fly between London and Chengdu, Nanjing, Hangzhou, Xiamen or Guangzhou, have to fly via a European hub airport. In total, there are 21 emerging market destinations with daily flights from other European hubs that are not served from Heathrow; including destinations such as Manila, Guangzhou, and Jakarta3. The lack of direct flights to Emerging Markets could be costing the UK £1.2 billion a year in missed trade opportunities.

18. We support the Government’s objective to protect and enhance the UK’s connectivity and welcome the principle of aviation growth within a sustainable framework. We support the proposal to encourage growth at point-to-point airports around the UK but it is important to recognise that expansion at these airports cannot substitute Heathrow’s role as the UK’s hub, nor the range of long-haul connectivity that the hub function provides.

19. In setting up its Independent Commission on Aviation Connectivity, chaired by Sir Howard Davies, the Government has recognised that maintaining Britain’s aviation hub status is critical to the UK’s future economic success.

20. There are no easy options when it comes to hub airport capacity but there are plenty of solutions being proposed. Rather than advocate a particular solution at this stage, we believe that diagnosis is more important. Does it matter to the UK if we have a hub airport? And if so, what do we require from a hub? Until the UK can agree what it needs from its hub, it is impossible to assess which option is best placed to meet those needs. It is more important to make a considered decision than to make a quick decision.

21. The qualities that make hub airports successful can be defined and assessed. Heathrow will shortly be publishing a document which sets out the criteria against which all the different options for UK hub capacity could be assessed.

Making Better use of Existing Capacity

22. We support the Government’s objective to make best use of existing runway capacity at all UK airports.

23. At Heathrow we have taken, and continue to take, a number of important steps to make best use of capacity at the airport, including working with our airlines to improve punctuality and trialling operational freedoms to improve performance and resilience.

24. However, it is important to realise that these are limited tactical measures that will not slow the decline of Heathrow’s hub status, and in turn the UK’s relative connectivity, in the long-term.

25. It has been suggested that the Government should encourage greater use of regional airports instead of Heathrow. As the operator of several airports around the UK, we fully recognise the important role that point-to-point airports play in their local economy and we support Government efforts to enhance connectivity from airports across the country.

26. However, point-to-point airports cannot replicate hub airport functions. There is already spare runway capacity at other London airports, as well as airports like Birmingham and Manchester, yet airlines choose not to use them unless there is sufficient local demand to sustain a route. This is because without the feed of transfer passengers to top up the peaks and troughs of local demand, airlines find it hard to keep a route profitable.

27. Existing capacity at point-to-point airports across the UK is complementary to, rather than a substitute for, hub airport capacity at Heathrow.

28. Experience has shown that if network airlines cannot fly from Heathrow, they tend not move to other London or regional airports, they move to Amsterdam, Paris, Frankfurt, Madrid or Dubai instead. Our European and Middle-Eastern competitors have already taken steps to capitalise on the changing locus of the world economy. We should not take the UK’s position as a successful hub for aviation for granted.

29. The role of airspace should not be forgotten in making best use of existing capacity. More efficient use of airspace, including full implementation of the CAA’s Future Airspace Strategy and the EU Single European Skies (SES) initiative, is an important step in making best use of existing runway capacity.

Environmental Impacts

30. The challenges of aviation growth are being tackled with determination by the industry and aircraft are getting quieter and cleaner. However, we recognise that people living around airports continue to be affected by noise and pollution and we are committed to further improving our performance.

31. We believe that aviation, like all sectors of industry, has a role to play in avoiding dangerous climate change and meeting the UK’s 2050 target of cutting greenhouse gas emissions by 80% below 1990 levels. Through Sustainable Aviation, the coalition of airlines, manufacturers, airports and NATS, the aviation industry has set out a robust long-term strategy to play its role. More information is available at www.sustainableaviation.co.uk.

32. Aircraft are getting cleaner. Aircraft today are around 70% more fuel efficient than forty years ago. Emissions trading will deliver net reductions in carbon, while technology, improved operational procedures and alternative fuels develop to deliver absolute reductions. The Committee on Climate Change has said that aviation in this country can grow by up to 60% without risking UK climate change targets. Government should focus efforts on ensuring successful implementation of the EU Emissions Trading Scheme (ETS) and achieving a global sectoral deal.

33. We are committed to playing our role in reducing local air pollution and helping to meet EU limits in the vicinity of the airport. We recently published our 201120 strategy for air quality at Heathrow which sets out the actions we plan to take to achieve this. This focuses on continuing to incentivise the use of cleaner planes and operating practices, promoting cleaner airside vehicles, and changing travel behaviour for staff and passengers.

34. Activities outside the airport also contribute to air quality concerns. The contribution to pollution of activities within the airport boundary falls rapidly with distance from the airport. Traffic on the road network in the surrounding area plays a significant role. Heathrow is close to two major motorways and a major motorway junction. Some of the traffic on that network is airport-related but much is not—on the M4 near Heathrow, only one in five vehicles are “airport-related”. Improvements in vehicle technology will therefore play a critical role in meeting pollution limits around the airport, as indeed they will in other urban areas in the UK (particularly in central London).

35. Noise is the main local impact of Heathrow. The airport’s location close to London, combined with its status as the world’s busiest international airport, mean that we have been at the forefront of UK and global approaches to tackling noise. We have a strong record of performance improvement. Equally, Heathrow’s location means that the bar is set high and we are committed to exploring what more we can do.

36. The aviation industry has delivered quieter aircraft and we are confident that technology improvements will continue to reduce noise. In 1970s, around 2 million people living around Heathrow fell within the 57dBA contour; by 2011, that number had shrunk to 243,350. New technologies, improved operations, more effective community engagement and enhanced mitigation measures will all have a role to play in reducing noise impacts in coming years.

37. Our strategic approach to noise is based on the “Balanced Approach” agreed by the International Civil Aviation Organisation’s (ICAO). The “Balanced Approach” has four elements:

The development and use of quieter aircraft (“reduction at source”).

The development and use of quieter operating procedures.

Land-use planning around an airport and mitigation schemes to reduce exposure to noise.

Operating restrictions.

We have actively sought to limit the impact of noise around Heathrow over many years, based on the approach above.

38. Noise is a complex issue. Traditionally, airport operators, including Heathrow, have not been successful in communicating effectively on noise issues to the local affected communities. Our challenge, working with community groups, is to find ways to improve our communications about noise so that they are understandable to non-experts and reflect local concerns. We are currently undertaking an extensive programme of research to further improve our understanding of community attitudes to noise. This is critical if we are to focus our efforts on the issues of most concern to residents.

39. We support the Government’s aims of improved transparency and more effective collaboration between industry and community groups to help address and mitigate the challenges of noise. At Heathrow we have made particular efforts in recent months to improve our engagement with the local community and look forward to sharing best practice and lessons learned in due course.

Conclusion

40. Aviation plays a vital role in the UK’s economy. We welcome the Government’s recognition of the economic benefits of aviation, particularly the importance of a hub airport and the unique role that Heathrow plays in terms of the UK’s connectivity.

41. The future of the UK will continue to be shaped by the effectiveness of its international transport networks. Britain’s connectivity needs are changing and links to the BRIC economies are becoming increasingly important. We are faced with choices about how best to structure Britain’s economy for this future.

42. Until the UK can agree what it needs from its hub, it is impossible to assess which option is best placed to meet those needs. It is more important to make a considered decision than to make a quick decision.

43. The Davies Commission should ensure that all options for maintaining the UK’s position as an international hub for aviation are objectively assessed against the criteria that make a hub airport successful.

44. Making best use of existing runway capacity is important but the scale of international connectivity offered by Heathrow cannot be provided by point-to-point airports. Hub airports are not simply larger versions of an ordinary airport; they operate in a different way. Existing capacity at point-to-point airports across the UK is complementary to, rather than a substitute for, hub airport capacity at Heathrow.

45. The challenges of aviation growth are being tackled with determination by the industry and aircraft are getting quieter and cleaner. However, we recognise that people living around airports continue to be affected by noise and pollution and we are committed to further improving our performance.

46. The Government is right to place renewed emphasis on transparency and collaboration between industry and local communities. At Heathrow, we have been working with community groups to build on the measures we have taken in the past and explore what more we can do. We look forward to sharing lessons learned in due course.

22 October 2012