Transport CommitteeWritten evidence from Manchester Airports Group (AS 44)

1. Introduction

1.1 This is the submission of the Manchester Airports Group plc (MAG) to the Transport Committee’s Call for Written Evidence into the Government’s Aviation Strategy. MAG welcomes the opportunity to respond.

1.2 MAG is the largest UK-owned airport operator and owns and manages Manchester, East Midlands and Bournemouth airports. In 2011–12 MAG’s airports handled over 24 million passengers and 421,000 tonnes of cargo, contributing around £3 billion to the UK economy. The group’s activities cover air traffic services, car parking, retail concession management, airport security services, fire fighting, engineering and property development.

2. Responses to Questions

Q1. What should be the objectives of Government policy on aviation?

2.1 We believe that aviation policy should be focussed on enhancing connectivity and making best use of airport capacity across the UK. MAG would also like to see a more coordinated approach to aviation policy and other areas of public policy, such as visas, planning and particularly taxation.

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

2.2 MAG would argue that international aviation connectivity is not just significant to the aviation industry, it is absolutely critical to the continued success of UK plc. As the economic centres of gravity shift away from Europe and the US towards Asia and the Middle East, the significance of international connectivity, particularly long haul, is set to increase yet further. Research indicates that over the next 15 years, 74% of global growth is expected to be in the developing world, and that this growth is dominated by China (29%).1 International air connections will be vital in ensuring that the UK maximises this opportunity.

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

2.3 Aviation is a success story of which the UK can be proud. It benefits the UK economy both as a wealth generator in its own right, and by facilitating the wider connectivity of people and trade. It also provides wider social benefits such as enabling people to take a well earned holiday.

2.4 In 2009, Oxford Economics estimated that UK aviation contributes nearly £50 billion to the UK economy and sustains some 921,000 jobs. For its part, MAG generates around £3 billion for the UK economy and supports over 86,000 jobs.2 Around 19,000 people are employed on the Manchester Airport site, with around 42,000 jobs in the region dependent on the airport business. The Airport City development at Manchester is set to create up to 13,000 additional jobs.

2.5 The UK’s premier hub for pure freight is at East Midlands Airport (EMA). Express freight at EMA supports over 10,000 local jobs and generates nearly £300 million for the regional economy, as well as facilitating the next day delivery that is critical to key UK business in sectors such as pharmaceuticals and telecommunications. Some 45% (by value) of the UK’s exports go by air. 3

2.6 Aviation benefits the economy by supporting inward investment, with international transport links being one of the major considerations for companies when choosing where to locate their business. The 2009 Manchester Independent Economic Review (MIER) branded Manchester Airport as: “critical for [the Manchester City Region’s] aspirations of becoming a truly global economy”.4

2.7 Finally, aviation is a major contributor to the Exchequer. The industry contributes around £9 billion in tax revenues, of which more than £2 billion comes from Air Passenger Duty (APD).

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

2.8 APD has reached such high levels that it is placing the UK (not just the aviation industry) at a competitive disadvantage with European counterparts who have much lower or zero flight taxes. It is inhibiting growth in a key sector for the UK economy and discouraging airlines from starting new routes, especially from the airports outside London.

2.9 UK aviation taxes are significantly higher than anywhere else in the world, with UK passengers paying almost 400% more tax than most countries in Europe. Excluding APD, aviation’s tax to GVA ratio is about 33%, broadly in line with the wider economy, however with APD it rises to 55%. In the case of Manchester Airport, the estimated tax take on departing passengers is more than double our revenue from aeronautical charges. For every pound airlines pay to land at Manchester, the Treasury takes £2 in APD.

2.10 The recent case of Northern Ireland and APD clearly demonstrates the effects of the tax. APD was threatening the viability of the air service from Belfast to New York, as passengers were choosing to travel instead via the Republic of Ireland, where the tax is just 3 euros. MAG is also aware of anecdotal evidence to suggest that passengers from the UK are buying two separate tickets (eg to mainland Europe or Ireland and onward to long haul destinations) in order to avoid the higher levels of APD. Put simply, APD is having a demonstrable impact on passenger behaviour.

2.11 As well as APD’s impact on UK passengers (and visitors) several airlines have told MAG that APD in the UK is a problem for them. Air Asia X has publicly stated that it would have started a new route from Manchester to Kuala Lumpur, but decided instead in favour of Paris Orly due to UK APD.

2.12 There is also evidence to show that APD has a disproportionate impact in the regions outside of London, particularly when it comes to attracting and sustaining long haul routes. This is due to the greater price sensitivity of passengers at regional airports, the lower proportion of business traffic, and the lower demand for premium class travel. For example, since the significant APD increases in November 2010, growth rates at regional airports have remained stubbornly 2–3% below those of the London airports, suggesting that the tax has acted as a greater “drag” on recovery. By 2016–17, if taxes rise as predicted, the decline in growth will be more than double the level at regional airports than it will be at Heathrow and Gatwick5. MAG believes that the impact of APD, as well as the role it could play in maximising the use of existing capacity (see Q2 below), should be considered urgently by the Government.

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

2.13 For the most part, the air passenger experience is delivered by the market—airlines and airports—with little input from the Government. However there is a role for Government in certain areas, such as the visa regime and the experience at the UK border, where we would like to see improvements in the passenger experience.

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

2.14 International connectivity does not begin and end at airports—the wider transport network is also important. The Government has made a number of important commitments to improving surface access to UK airports, including the Airport Link road at Manchester, the widening of the A453 at East Midlands, and the Northern Rail Hub and other key rail electrification programmes. These are very welcome. We would also strongly support connecting Manchester Airport to the HS2 line.

Q2. How should we make 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?

2.15 MAG has no specific comments on Part (a) of the question.

(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?

2.16 With capacity equivalent to fifteen new Runway 3s already available at existing airports across the UK (including in the London system), there is a strong imperative to make best use of the capacity that exists today. Given that any new capacity is unlikely to become available before 2020, the Government is right to focus on existing capacity, particularly in the short term.

2.17 MAG is committed to making a significant contribution to delivering enhanced connectivity to the UK. Manchester is the largest airport outside of London, and provides the UK with a platform for growth, particularly for the types of network and long haul carriers which provide access to emerging markets worldwide.

2.18 Manchester’s catchment area is similar in size to that of Heathrow, with 22 and 24 million people respectively within a 2-hour drive time of the airport. Crucially its catchment has a relatively small overlap with that of Heathrow, unlike Gatwick and Birmingham, which have significant overlaps. Geographically, Manchester’s position in the North of England means that it has the ability to serve the whole of the UK, not just the whole of England. This could be further strengthened by linking the airport to the HS2 network.

2.19 With 2 runways, and capacity enough to support up to 400,000 movements or 55 million passengers, there is considerable scope to increase the number of destinations and frequencies within existing capacity, reducing the need for passengers to make unnecessary journeys to the airports in the South East. DfT forecasts suggest that Manchester Airport could be handling more than 50 million passengers by 2050.

2.20 Last year over five million passengers drove from Manchester’s catchment area to fly from Heathrow or Gatwick. Recent experience of growth by the key Middle East carriers serving Manchester illustrates how passenger demand can be clawed back from London, but given the scale of the challenges facing the South East, we would urge the Government to support a positive package of measures to accelerate that process. This could include:

Lower rates of APD at airports which are not congested.

Introduction of US-pre clearance.

“Open skies” in the UK regions.

Proactive promotion of airports outside of London during bilateral negotiations;

A visa regime designed to ensure that the UK is seen as a welcoming place to visit, particularly from key emerging economies such as China.

Greater coordination between airports, inward investment agencies, tourism bodies, Government Departments and Embassies worldwide to market the UK to global airlines.

2.21 Work is already well underway in many of these areas and we welcome the Government’s initiatives to date. However MAG believes that reform of APD is central to the package of supportive policy measures that can help to make best use of existing capacity and in the case of Manchester Airport in particular, allow it to continue to develop its prominent national role.

2.22 As described above, the impact of APD is uneven. While airlines are keen to serve the London airports—especially Heathrow and Gatwick—because of the higher yields that can be achieved there, MAG’s experience is that it is more difficult to attract airlines to other UK airports. The demographics of the London airports are such (affluent catchment, large proportion of business traffic, large percentage of inbound and outbound traffic) that additional taxation has minimal impact on propensity to fly. However, this is not the case in the non-London airports, where the recession has had a significant impact, and higher taxes are threatening economic recovery.

2.23 This situation has significant implications for the capacity debate. APD is both perpetuating and widening the gap between the congested UK airports and those with capacity to spare. We believe that a more rational approach would be to use taxation to price demand at congested airports more sensibly and to incentivise the use of those airports that are less constrained. This could provide a significant boost to the regions outside the South East, promoting jobs, new routes and services and inward investment, consistent with the Government’s aspiration for more balanced economic growth.

2.24 MAG believes that the time has come to abandon the “one-size-fits-all” approach to aviation taxes. Differential or congestion taxes offer a potentially revenue neutral way of reconciling the Government’s need to raise revenues from aviation with the aim of rebalancing the UK economy and relieving pressure on congested South East airports.

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

2.25 MAG welcomes the commitments to date from the Government to improve surface access to airports. We would like to see the Government build on these commitments by confirming that Manchester Airport, as the gateway to the North of England, will be connected to the HS2 line. We look forward to an early commitment to a HS2 stop for Manchester Airport in Phase 2 of the project.

Q3. What constraints are there on increasing UK aviation capacity?

2.26 Noise, carbon emissions and other related environmental impacts are taken seriously by the aviation industry, which is committed to reducing its overall negative impact. MAG is a member of Sustainable Aviation, which is a long term strategy group, setting out the collective approach of the industry to tackle the challenge of sustainable growth.

(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?

2.27 MAG’s track record in reducing the size of its noise contour, whilst simultaneously increasing flights, should be seen as best practice of how airports can balance their commercial interests and community obligations. For instance between 2001 and 2011, the population in Manchester Airport’s daytime noise contour (60dB_LAEQ,16h) fell from 25,050 to 7,650 (a reduction of 69%) whilst residents in the night noise contour (60dB_LAEQ,8h) fell from 3,250 to 200 (a reduction of 94%). Noise complaints also fell over the same period from 9,557 to 838, a reduction of 91%.

2.28 We are broadly content that the Government’s Draft Aviation Policy Framework supports our locally based approach and acknowledges our close community engagement, targeted mitigation and work with airlines/freight operators to devise appropriate charges and innovative processes such as Continuous Descent Approach. We have suggested that at our airports concentrating flights along defined corridors, rather than dispersing flights over a wider area to provide “respite’, is a better way to manage noise.

2.29 MAG also suggests that the Government retains the 57dB(A) noise contour as it is broadly in line with EU standards and provides a long standing benchmark measure. However, this does need aligning with other noise limit controls such as for rail, road and construction and Government could produce better guidance for local planning authorities to clarify where developments can and should be located.

(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?

2.30 Sustainable Aviation published a CO₂ Roadmap in March 2012 setting out a credible path to tackle aviation’s contribution to climate change. Overall, the roadmap forecasts that aviation can accommodate significant growth and still reduce net emissions to 50% of 2005 levels. However, this can only be delivered by working in partnership with Government, with a key role to support research and development in aerospace technology, encouraging the introduction of sustainable bio-fuels, delivering on the Single European Sky initiative and helping to establish a global approach to the regulation of emissions from international aviation based on carbon trading.

2.31 We were pleased to note that the Government addresses many of these roles in the Draft Aviation framework policy; however there is a pivotal role for the Government to play in helping the industry develop a supply chain for bio-fuels that is economically and environmentally sustainable. Currently, bio-fuel subsidies are available for road transport, but not aviation where alternative fuels aren’t as readily available.

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

2.32 MAG accepts that the aviation industry should cover its external costs and welcomes the inclusion of aviation within the EU-ETS. As such we urge the Government and EU to seek to resolve the current issues that threaten the success of EU ETS.

Q4. Do we need a step-change in UK aviation capacity? Why?

2.33 The current debate has been characterised as one of Heathrow vs a new hub airport, possibly in the Thames Estuary. While MAG does not dispute that additional capacity will be required in the long term, we would argue that both hub and point to point capacity is needed, and that the short to medium term priority should be how to make best use of existing capacity.

2.34 While there will always be a place for hub capacity, point to point connections remain important—indeed more than 80% of passengers flying from the UK are on point to point flights. The advent of Dreamliner services next year will be a game changer for point to point airports, making direct long haul services to previously unserved destinations commercially viable for the first time.

2.35 While Manchester Airport values its connections to Heathrow and other hubs, we are also committed to pursuing direct connections, as these offer the greatest economic payback to the UK regions66. We know that demand exists for services like Manchester to Hong Kong, and there should be no reason why this demand cannot be met locally rather than via a hub77.

(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?

2.36 MAG is sceptical about the notion of a new hub airport such as the proposed development in the Thames Estuary. We are not persuaded that the proposed airport can ever be financed or made commercially viable without closing Heathrow, which could have devastating implications for the West London economy. In addition, the practical challenges relating to airspace, safety and bird strike, sunken vessel and the sheer scale of new infrastructure required appear likely to prove insurmountable.

2.37 The independent Davies Commission will consider the options for runway capacity in detail and MAG looks forward to playing an active role in the Commission’s inquiry. In the interim however, making best use of existing capacity should be viewed as an urgent priority.

19 October 2012