Transport CommitteeWritten evidence from Stop Stansted Expansion (AS 42)
This submission focuses on the issue of UK airport capacity and simply seeks to address the question: Do we need more runways?
1. In 2011, UK airports handled 2.0 million air transport movements (“ATMs”) and 219 million passengers, and the Committee on Climate Change (“CCC”) has assessed that the maximum number of ATMs compatible with the target of stabilising UK aviation emissions at their 2005 level (37.5 MtCO2) by 2050 is 3.4 million per annum.1
2. The UK currently has runway capacity to handle 5.7 million ATMs per annum2 and, with some investment in terminals, taxiways and aprons—but without new runways—this can be increased to about 6.7 million annual ATMs. By way of international comparison, the UK has more commercial runways than Germany, France, Spain and Italy. We even have more runway capacity than Japan even though Japan has twice our population and twice our GDP.3
3. Converting ATM capacity into passenger capacity, in 2011 there were, on average, 110 passengers per ATM4 and on this (simplistic) basis UK airports could handle over 700 million passengers per annum (“mppa”) by 2030 without any new runways. Moreover, the average number of passengers per ATM has grown by 2% a year over the past 20 years and an increase of just 1% a year between now and 2030 would increase the capacity of UK airports to over 1,000 mppa—three times the most recent DfT passenger demand forecast for 2030.5
4. Ten years ago, in the lead-up to the 2003 Air Transport White Paper (“ATWP”), the key issue to be addressed was the DfT’s “unconstrained” demand forecast of 500 mppa by 2030. The ATWP set down a policy framework, including four new runways in the UK, to meet a “constrained” demand forecast of 484 mppa.6
5. The outlook today is far less bullish. The latest DfT forecasts, published in August 2011, show unconstrained demand of 345 mppa by 2030, and this forecast was based on:
the IMF’s April 2010 World Economic Outlook;
the OBR’s March 2011 Economic and Fiscal Outlook; and
DECC’s March 2009 Fossil Fuel Price Assumptions.
In each of these areas the outlook has since deteriorated, so far as the air traffic demand forecasts are concerned7 and, using the sensitivity analysis provided by the DfT8, it can be estimated that the 2030 unconstrained demand forecast is now about 305 mppa.9
6. It is therefore clear that the challenge of meeting the future level of demand on our UK airports is far less today than was anticipated ten years ago. The reduction in the unconstrained demand forecast is equivalent to the capacity of more than four runways.
7. However, the main shortcoming with all of the above analysis is that it considers the UK as a whole and ignores the over-concentration of air travel on airports in the south east. In 2011, 62% of UK air travel was from airports in the south east but the south east accounts for only one third of the UK population and just 12% of the UK land area. It is the most crowded part of the UK and it has the most crowded airspace in the world.
8. Without additional runways, airports in the south east will be capable of handling c.220 mppa by 2030, ie 72% of the projected demand for the whole of the UK, and so even in the south east, taken as a whole, there is more than adequate airport capacity until about 2030.
9. The DfT has produced demand projections beyond 2030—to as far out as 2080—which do predict a capacity shortfall in the south east. In our view, however, it is neither sensible nor necessary to look at air traffic demand forecasts for more than 20 years ahead. There are so many uncertainties associated with the future demand for air travel that it is delusionary to try to predict demand more than about 20 years ahead. Moreover, if extra capacity is genuinely needed, it could be delivered within a 20 year time horizon.
10. We acknowledge however that there is a particular problem in meeting market demand at Heathrow, and there are those who believe that there are associated problems arising from the alleged need for more hub capacity. For obvious environmental reasons, we are firmly opposed to the development of a third Heathrow runway, just as we are firmly opposed to any additional runways at Gatwick or Stansted. Instead, we believe that the Government should use the policy tools which it has at its disposal to manage the demand for air travel.
11. Amongst the simplest policy tools available to Government is Air Passenger Duty (“APD”). Higher levels of APD can be justified at a number of levels (see Annex A) and could quite reasonably and logically be used to temper the demand for air travel. In addition, differential rates of APD could be used to shift demand away from congested airports, and this would have particular implications for Heathrow as a hub airport.
12. In seeking to persuade the Government of the need for more airport capacity, the aviation industry constantly emphasises the importance of connectivity to UK business but the number of business flights by UK residents has fallen by 20% since 2000 and only one in every eight overseas flights by UK residents last year was for business purposes.10 The decline, at least in part, must reflect the fact that companies are increasingly taking advantage of video and web conferencing technology as an alternative to (at least some) face-to-face meetings.11
13. Even at Heathrow, business trips—including by foreign residents and including transfer passengers—accounted for only 31% of its passenger throughput last year, compared to 38% in 2000. Leisure travel, including VFR12, now accounts for 79% of all UK air travel.13 It is true that leisure travellers, when aggregated with business travellers, can sometimes help to justify a route and/or a more frequent service but this is not a universal truth. Some routes fall quite distinctly into one category or the other. In this context, it is worth noting that you can fly every day of the week from Stansted to Palma and Tenerife but there are no flights from Stansted to any of the key European business centres: Frankfurt, Paris, Zurich or Brussels.14 Heathrow also still has its fair share of predominantly leisure routes and, in 2011, flew more passengers to Miami than to mainland China and more passengers to Nice than to Brazil.15
14. In short, we believe that there is considerable scope to make better use of UK airport capacity. Differential rates of APD could be used as a tool to re-distribute demand away from the busiest airports and this would also help to prioritise the use of scarce capacity at our busiest airports because business travel is much less price sensitive than leisure travel.16
Deliverability
15. Finally, we have dealt in this submission solely with the issue of demand and whether or not extra runways are needed to meet that demand. There is, however, another major policy consideration, namely, the question of deliverability. Governments do not build runways—at least, not in the UK—and so there is no point in promoting a policy which is undeliverable for financial and/or commercial reasons. The outcome will finally be determined by market as well as political considerations.
19 October 2012
References
1 “Meeting the UK aviation target––options for reducing emissions to 2050”, CCC, Dec 2009.
2 Ibid, based on original estimates in Tables ES.2a and ES.2b, the former adjusted to incorporate developments since 2005 and the latter adjusted to remove capacity relating to additional runways.
3 Boeing Airport Directory, CIA World Factbook 2011, CAA, NATS AIS (Aeronautical Information Service) and azworldairports.com.
4 CAA airport statistics; excludes freight ATMs, which accounted for 2.7% of total ATMs in 2011.
5 “UK Aviation Forecasts”, DfT, August 2011, Table 2.7.
6 “Passenger Forecasts: Additional Analysis”, DfT, Dec 2003, p6. Note: The ATWP was presented as constraining demand, not “predict and provide” but the policy was to provide for 97% of unconstrained demand (484 mppa out of 500 mppa).
7 For example, DECC’s central oil price forecast for 2030 is now US$130/brl compared to US$90/brl used by DfT – see http://www.decc.gov.uk/assets/decc/11/about-us/economics-social-research/2934-decc-oil-price-projections.pdf and “UK Aviation Forecasts”, DfT, August 2011, para 2.33.
8 “UK Aviation Forecasts”, DfT, August 2011, Tables 2.9 and 2.10 and Annex C.
9 SSE modelling of the updated IMF, OBR and DECC forecasts/projections.
10 “Travel Trends”, Office for National Statistics, 2000 and 2011 editions, Table 3.07 air travel data.
11 See, for example, “Moving on: why flying less means more for business”, WWF, Feb 2011.
12 VFR = Visiting friends and relations.
13 Weighted average based on Table 2 data from the CAA Annual Passenger Surveys 2009 to 2011.
14 There are flights from Stansted to Frankfurt Hahn but this is 120km from Frankfurt. Also, it should be noted that in past years there have been some winter ‘ski’ flights from Stansted to Zurich.
15 CAA Airport Statistics, 2011, Table 12.1, International Air Passenger Route Analysis shows that Heathrow flew. 954,000 passengers to/from Miami, 663,000 to/from mainland China (Beijing/Shanghai), 537,000 to/from Nice and 526,000 to/from Brazil (Rio de Janeiro/Sao Paulo).
16 “UK Aviation Forecasts”, DfT, August 2011, p.15-19, especially the comparable price elasticities in Table 2.1 (p18).
Annex A
AIR PASSENGER DUTY––TEN KEY POINTS
1. APD was introduced in 1994 by Ken Clarke, the then Chancellor of the Exchequer, not as an environmental tax but because he considered the aviation industry to be lightly taxed compared to other sectors, largely arising from its exemption from fuel duty and VAT.
2. APD was initially set at £5 for short haul economy flights, which account for three quarters of all air travel. In 1997 Ken Clarke doubled APD to £10 for short haul economy flights.
3. Gordon Brown halved the short haul economy rate of APD in 2001, put it back up again to £10 in 2007 and Alistair Darling raised it to £11 in 2009. George Osborne increased it to £12 in 2010. There was no increase in 2011 but it was raised to £13 in April 2012. Thus, for the vast majority of passengers APD has increased by just £3 (30%) over the past 15 years.
4. APD is payable only on departure from a UK airport and so the basic Band A rate of £13 is for a round trip to an overseas destination. APD is however payable on both legs of a domestic round trip within the UK.
5. APD raised £2.6 billion for public finances in 2011–12 and this is planned to increase to £3.9 billion by 2016–17. APD would, however, need to rise to four times its current level to offset the value of the industry’s exemption from fuel duty and VAT. If airlines paid the same level of fuel duty and VAT as road users, the cost to the aviation industry would be around £10.5 billion a year.
6. Not only do airlines pay no VAT on fuel, they are exempt from VAT on everything they buy relating to the provision of air transport services. Mostly, VAT is not charged in the first place; aircraft and aviation fuel, for example, are zero rated. Where VAT is charged, it can be claimed back. In 2010–11, HMRC paid UK airlines a VAT rebate of £583 million (net).
7. In 2010–11, the latest year for which a detailed HMRC breakdown is currently available, 77% of passengers paid APD at the short haul economy rate (Band A).
8. Whilst it is true that “passengers can end up paying £184 tax on some flights”, as we are repeatedly told by the industry, this is the top rate of APD and applies only to first class and business class passengers on long haul flights to countries whose capital city is over 6,000 miles from London. Less than 0.4% of all air passengers fell into this category in 2010–11.
9. Regarding the alleged negative impacts on the UK economy of the recent hikes in APD, it is worth noting that overseas leisure trips by UK residents fell from 60.1 million in 2008 to 49.2 million in 2011––down 10.9 million (21.5%) whilst the number of foreign tourists coming to the UK fell by less than 300,000 (1.6%) over the same period, from 23.8 million to 23.5 million. The effect of this was to reduce the UK’s tourism deficit by £6.8 billion and to boost spending in the domestic UK tourism industry by £5.1 billion over the same period (2011 vs 2008).
10. Finally, those in the aviation industry who are pressing the Government for APD to be reduced should explain how they would propose to make up the revenue shortfall to the Exchequer. Should we sack some more policemen, teachers or nurses? Should we cut pensions or welfare benefits? Or should we raise VAT and/or extend its scope?