Transport CommitteeWritten evidence from the Airport Operators Association (AS 91)

Introduction

The Airport Operators Association (AOA) is the national voice of UK airports. We are a trade association representing the interests of UK airports, and the principal such body engaging with the UK Government and regulatory authorities on airport matters. The AOA welcomes the opportunity to respond to the Transport Select Committee's enquiry into Aviation Strategy.

What should be the objectives of Government policy on aviation?

1. The AOA believes that the Government should develop an integrated approach to aviation policy. Some key policy levers, like tax—which has major effects on the sector's performance—are within the remits of other Government departments.

2. The AOA presents its ideas and 25 deliverable recommendations for an integrated framework in its document: "An Integrated Policy Framework for UK Aviation: Connecting the Economy for Jobs and Growth"1. The Executive Summary and a full copy of this document have been provided alongside this submission. The content of this submission is drawn mostly from the content of this document, with some additional material from the AOA's submission to the Government's consultation on the draft Aviation Policy Framework (APF).

3. The AOA also believes that the Government's draft Aviation Policy Framework (APF) should place more weighting on the importance of connectivity to the UK economy. The APF places emphasis on important policy ideas and questions, relate to mitigating aviation's effects; but there should be much stronger emphasis on measures to further unlock the performance of the sector. What is required is a clear and supportive aviation policy that will allow the sector to thrive, boosting the UK's connectivity to its key trading partners, providing choice for passengers, and enabling the wider economy to benefit from better business links to the UK.

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

4. Policy-makers know intuitively that connectivity is vital to the UK. The UK's ability to trade, in order to maintain prosperity, will increasingly be the touchstone of its economic health. The APF does consider connectivity. It states that "The UK is currently one of the best connected countries in the world". However, the evidence that supports this is based on available "Airline Seat Kilometres" (ASKs)—only one measure of connectivity.

5. Wider analysis of UK connectivity suggests that the UK is losing ground relative to its competitors. The UK currently has a strong position, but there is mounting evidence that it will struggle to maintain it. Even using ASKs as the measure, since the recession began in 2008, UK connectivity has declined by 4.9%, whereas Germany's has increased by 4.3% and France's by 3.4%2. Oxford Economics (see Figure 1 in the Annex to this submission) has found that, in proportion to the size of its economy, the UK does not rank as highly as it could on air connectivity.

6. Also, while we still maintain a strong position in the transatlantic aviation market and to countries like India, the UK does not rank as highly on connectivity other BRIC (Brazil, Russia, India and China) economies. This is illustrated in Table 1 in the Annex to this submission, which sets out the annual number of flights from the UK and other countries in Europe to the rapidly developing BRIC economies.

b. What are the benefits of aviation to the UK economy?

7. A 2011 study by economic consultants Oxford Economics3 found that the aviation sector itself contributes £49.6 billion to the economy (3.6% of UK GDP) and close to one million jobs. This total is made up of directly flying activity, aviation's supply chain, spending by aviation sector employees, and aviation's boosting of inbound tourism.

8. The Business and General Aviation (BGA) Sector is also important, adding about £1.5 billion a year to the economy4.

9. Some 40% (by value) of the UK's exports go by air5 and air-freighted shipments between Europe and Asia have increased by an average of 10% a year since 19916, reflecting businesses' reliance on aviation to trade with high-growth economies like China and India. Vital express freight services often take place during the night, allowing, for example, "Just in Time" (JIT) delivery—delivering over £6 billion a year in efficiencies through reduced stockholding7 . Work by the Civil Aviation Authority (CAA) 8 has found a strong correlation between the countries businesspeople travel to or from, and the UK's success in trading with them (see Figure 2 in the Annex to this submission). In work by Oxford Economics9, some 80% of firms reported that air services were important for the efficiency of their production—with higher scores in China and the USA.

10. Aviation also drives growth in tourism, the UK's sixth largest industry. A study by Deloitte10 concluded that tourism boosted the UK economy by £115 billion in 2009, about 8% of UK GDP. While other modes of transport can have a significant role for European tourists, aviation is the critical enabler for UK tourism businesses. Some 72% of inbound visitors arrive in the UK by air and account for 83% of all inbound visitors' spending11. In the coming years, aviation will be critical to the UK's ability to capitalise on the success of the Diamond Jubilee and London Olympics.

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

11. Air Passenger Duty (APD) has increased between 160% and 360% since 200712. In economy, long haul APD rates are some six times the average of other countries in Europe, and, in economy, for short haul, the figure is three times (Figures 3 and 4 in the Annex to this submission illustrate this clearly).

12. The UK's excessive levels of APD also mean that the aviation sector pays a disproportionate amount of tax to the Exchequer compared with other sectors. Work for the AOA by economic consultants Oxera13 found that: excluding Air Passenger Duty (APD), the amount of tax the sector pays to the Exchequer, compared with economic value aviation creates14 is about 33%, broadly in line with the wider economy. However with APD included, this ratio rises to 55%, significantly higher than a typical sector.

13. There is mounting evidence that APD is acting as a drag on both the aviation sector's performance and that of the wider economy15. The Government's own figures16 projected 7,000 fewer flights in 2011– 2012 as a result of a string of APD increases in previous years and a 2011 report for Scottish airports17 estimated that that APD would result in Scotland losing 1.2m passengers, 148,000 tourists and £77m in revenue to 2014.

14. There is also growing evidence that APD has resulted in key routes being lost to UK airports. Air Asia X, a low cost provider of routes to Asia ceased operations in the UK at the beginning of 2012, citing the UK's high levels of APD as a cause. Continental Airlines would have ended its Belfast—New York service, had the Chancellor not intervened in 2011 to permit special low APD rates for long haul services from Northern Ireland. Continental has now merged with United Airlines and would like to start other long haul services from other UK airports. It has been clear though that APD is a major barrier to it doing so.

15. In work for the British Chambers of Commerce (BCC) in 201118, economic consultants Oxera estimated that: were APD to be increased by 5% in real terms every year—a similar increase to that in 2012—there would be serious consequences for the UK economy. While the Government would raise more revenue, the increase in ticket prices would have a knock-on effect on jobs and growth. Growth could be curtailed by over £1 billion as soon as 2015, with a possibility that the loss to the economy could treble to £3 billion by 2020. This effect could reach a staggering £10 billion by 2030. Similarly, up to 25,000 jobs could already be affected by 2015.

16. The Government was right to avoid repeating the high percentage increases in APD made by the previous administration in 2007, 2009 and 2010. The current policy of annual inflationary rises stems the negative effects of real terms rises in aviation tax. However, it still leaves APD at high and damaging levels, the effects of which have not been analysed by any Government. The Government should consider a macro-modelling approach to analyse the effect of an APD cut on overall performance of the UK economy. Also the Treasury should refrain from any further increases in APD, with immediate effect.

d. How should improving the passenger experience be reflected in the Government's aviation strategy?

17. Improving the passenger experience is a constant focus for airport operators. Despite the economic backdrop, airports across the country continue to invest in improving their facilities. Assuring an excellent passenger experience needs both investment in facilities and a focus on customer service from airport staff. Many examples of the investments UK airports are making in these areas can be found on page 30 of the AOA's "An Integrated Policy Framework for UK Aviation: Connecting the Economy for Jobs and Growth".

18. While airports work to drive improvements, the Government and its agencies also have a key role. Though less obvious, some areas of policy have major effects on passengers' experience of airports. For outbound passengers, the detailed rules the Department for Transport sets on security bear directly on the quality of passengers' journeys. At arrivals, it is the Home Office's Border Agency that creates first impressions. Without a strong customer focus in these areas too, the effectiveness of airports' own efforts are undermined. There is more the Government can do.

19. There is an overriding need for the UK Border Agency (UKBA) to develop a clear vision, and have the strategy and resources to deliver it. This will require the Home Office to make a step change in its ambitions for the Agency and the quality of the UK's welcome. For example, the Agency's target queue times of no longer than 45 minutes for non-EEA nationals, or 25 minutes for EEA nationals are not acceptable in the context of a good passenger experience and need to be more ambitious.

20. Passengers' experience of airport security is equally critical. In 2010, the then Transport Secretary announced the Government was moving towards a new form of airport security. Outcomes Focused Risk Based Regulation (OFRB) would move away from prescribing exactly—in detail—how airports should carry out security checks. Instead the Government would set general "outcomes", leaving airports more say in how to achieve them. Progress towards this regime has been slow. What has been done has focused on the airport quality management systems needed to underpin a new regime—but the new regime itself is yet to be developed. It is clear that the government will face a challenge in grounding its idea in real changes, and must not underestimate the task of persuading other EU member states of the need for reform. OFRB remains a good concept, which airports support. However, the Government must put in place the plan and resources to deliver OFRB security. As it influences other European countries to adopt the OFRB concept, the Government should also take the opportunity to review thoroughly the regime of UK-only measures and harmonise them as far as possible with the rest of Europe.

How should we make the best use of existing aviation capacity?

c. How can surface access to airports be improved?

21. Good connections to airports are vital to moving passengers and goods quickly. This maximises the economic value of aviation and makes flying convenient both for business and leisure. Surface access to airports is not just the responsibility of airport operators: Central and Local Government and transport agencies must play a full role too. The Government should continue to prioritise the type of investment in the rail and road networks set out in its 2011 National Infrastructure Plan.

22. The AOA welcomes the initiative, set out in the APF, to review rail access to major UK airports. However, we believe that the scope of this work should be extended beyond the six named airports. The work should also be fully integrated into Network Rail's long-term planning process and its recent studies on key future priorities. It is important to focus on infrastructure, but there are other ways to improve integration too. Better information to passengers, options to improve integrated rail and air ticketing, and ensuring that the benchmarks used in rail franchise rounds deliver the right services for airport access, can all help to make better use of airport capacity.

What constraints are there on increasing UK aviation capacity?

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?

23. The AOA believes that noise is a difficult and multi-faceted problem, requiring understanding of, and agreement with, local communities.

24. The Government's main aim in this area should be to facilitate airports' work with their local communities and airlines, in order to improve noise performance.

25. AOA member airports of all sizes focus on noise as a key issue, but noise objectives should not be considered in isolation and need to be balanced with the benefits that aviation's growth brings, both in terms of economic value of the sector itself and also benefits to the wider economy.

26. There is a balance to be struck, but the aviation sector has made good progress in recent years in either reducing, or containing aircraft noise, while still meeting significantly increased demand for flights. This progress is illustrated clearly in Table 2 of the Annex to this submission, which shows the reducing areas of the 57dB(A)19 noise contours at six major UK airports.

27. The AOA continues to support the idea and exploration of noise envelopes.

28. The AOA also shares the Government's desire to reduce the number of people affected by noise. However, it points out that the number of people affected by noise depends heavily on Local Authorities' land use planning policies. Progress in reducing aircraft noise has not been matched by rigour in the applications of land-use-planning policy across the country. As noise levels reduce, the improved environment can encourage developers to propose schemes closer to airports. Also, there is pressure on Local Planning Authorities to approve new housing developments. Together, these can lead to residential developments very close to airports, undermining the positive effect of reduced noise contours. Local Authorities should put in place long term policy and development control regimes that minimise the effects of noise around airports.

29. The majority of AOA members believe that the 57dB (A) contour should be retained. However, the AOA supports further work being done on the factors that drive community annoyance.

30. Airports, airlines, aircraft engine manufacturers, and air traffic management providers, work together through the Sustainable Aviation (SA) Initiative, a long term strategy aimed at ensuring a sustainable future for the aviation sector20.

31. SA is developing a Noise Road-Map, the first edition of which will be submitted to the Government in response to the draft APF. The AOA supports the analysis in this, and urges the Government to do the same. The SA Road-Map will contain a number of recommendations on incentives to deal with noise.

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?

and

c. What is the relationship between the Government's strategy and EU aviation policies?

32. Aviation's climate change impact is relatively small, but has grown. It is responsible for about 1.6% of global greenhouse emissions and some 6% of the UK's total CO₂ emissions. As emerging economies like China and India grow, the best way for the UK to influence CO₂ emissions from aviation is through internationally-focussed efforts, not restrictions on aviation at home.

33. In its recently updated CO₂ Road-Map21, SA projected that UK aviation sector can grow between now and 2050 without a substantial increase in the CO₂ it emits. The SA Road-Map is shown in Figure 5 in the Annex to this submission.

34. The AOA continues to support the European Emissions Trading Scheme (EU ETS) as a demonstrable first step in international emissions trading. The problems the EU ETS has precipitated with non-EU countries however cannot be ignored. The EU must be flexible on this and seek a resolution to this problem, either through an ICAO agreed scheme, or by reconsidering the design of the EU ETS.

35. However, a scheme encompassing the EU can only be a second best solution. The EU ETS must be seen only as a first step towards a global scheme. A global scheme would remove the distortions and problems currently associated with the EU ETS.

36. The AOA does not support the principle of a UK unilateral carbon target. The Government's own analysis has demonstrated the disproportionate cost of this type of solution22. We are pleased that since the Government's 2011 consultation, the Committee on Climate Change (CCC) 23 has also warned of the counter-productive effect of a unilateral target in its recent advice to the Government on including international aviation emissions in UK carbon budgets. We accept, though, the CCC's recommendation that emissions from international aviation should be included in UK carbon budgets.

37. The AOA believes that the Government should support the development of more efficient aircraft and engine technologies and the development and large-scale deployment of sustainable aviation fuels.

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

38. Maintaining the UK's aviation advantage requires excellent aviation connectivity right across the country, ensuring the UK has both vibrant point-to-point airports and sufficient world class hub capacity. There are encouraging signs that the Treasury understands what is at stake. In its 2011 National Infrastructure Plan airports were mentioned for the first time, recognising their importance to the economy and the country's connectivity, and placing them in the context of the overall stock of national infrastructure. Yet the DfT's draft APF offers few signals that overall the Government wants to see its approach of boosting publicly-funded infrastructure, mirrored in the world of privately-funded airports. The Government must modify the content of the APF to signal in no uncertain terms that aviation is important to the UK and that airport development, within sustainable limits, is supported by the Government. It should go further still by placing an expectation on Local Authorities to plan for airport development. Where an airport has prepared an up-to-date Master Plan—a formal document which the APF already gives guidance on—there should be an expectation that its content will be mirrored in the relevant Authorities' Local Plan(s).

39. Central Government must also ensure that the strategic nature of airports is recognised by Local Government. Airports across the UK are economic gateways to wide geographic areas, bringing benefits well beyond the areas of single Local Authorities and their plans. The 2012 National Planning Policy Framework (NPPF) places a duty on Local Authorities to work together on strategic matters, but to do this well for airports they need to draw on common, high-quality evidence. The Government's new Local Enterprise Partnerships (LEPs) can help here. Representing both business and community needs, LEPs could perform a key role in analysing the future aviation needs of broad geographic areas. The Government could incentivise LEPs to perform this role. It should offer additional funding, project-by-project, to LEPs that can carry out high quality analysis on future needs for airport infrastructure.

40. In the summer of 2012, the new Transport Secretary Patrick McLoughlin announced that the question of maintaining the UK's status as an aviation hub would be addressed by an Independent Commission chaired by Sir Howard Davies. If the Commission is to deliver properly on its remit, it must consider all options as thoroughly and quickly as possible, to prevent the UK losing further routes, business and jobs; take wide advice from experts throughout the country in industry, business and academia; and provide meaningful interim and final reports, which the Government must commit to acting on.

Figure 1

OVERALL UK CONNECTIVITY COULD BE BETTER

Figure 2

UK TRADE WITH FOREIGN COUNTRIES IN 2009, CORRELATED WITH NO. BUSINESS TRIPS TO/FROM SAME COUNTRIES

Note: Statisicians use the coefficient known as R2 to measure how well one measure can be predicted by another. Its value varies between 0 (no correlation) and 1 (perfect correlation).

Figure 3

UK AVIATION TAX IS THREE TIMES HIGHER FOR SHORT HAUL FLIGHTS THAN THE REST OF EUROPE (IN ECONOMY CLASS)

Figure 4

UK AVIATION TAX IS SIX TIMES HIGHER FOR LONG HAUL FLIGHTS THAN THE REST OF EUROPE (IN ECONOMY CLASS)

Figure 5

THE SA CO₂ ROAD-MAP

Table 1

DIRECT UK CONNECTIVITY TO BRIC (BRAZIL, RUSSIA, INDIA, CHINA) ECONOMIES IN 2011

From	Connectivity Rank	Departures	Seats
Direct Connectivity to Brazil
France	1	2,373	625,849
Germany	2	1,537	455,940
UK	3	1,129	348,135
Italy	4	982	264,434
Netherlands	5	431	147,251
Direct Connectivity to Russian Federation
Germany	1	19,198	2,811,650
Italy	2	5,110	846,229
France	3	5,132	767,560
UK	4	4,127	663,007
Netherlands	5	2,069	300,749
Direct Connectivity to India
UK	1	5,732	1,564,459
Germany	2	3,009	834,533
France	3	1,358	364,181
Netherlands	4	753	220,536
Italy	5	470	110,792
Direct Connectivity to China*
Germany	1	3,884	1,165,507
France	2	2,566	788,144
Netherlands	3	2,084	581,798
UK	4	1,579	444,134
Italy	5	985	257,971

*Mainland China; Not Hong Kong
Source: Capstats.

Table 2

THE AVIATION SECTOR HAS MADE GOOD PROGRESS IN REDUCING NOISE AROUND AIRPORTS

	1998	2010	Change(%)
Number of aircraft movements (thousands)	1,077	1,136	+5%
Surrounding area exposed to significant noise levels (km2)	410	226	-45%
Number of people in this area (thousands)	473	285	-40%

(Source: Sustainable Aviation)

Notes:

1. Statistics are aggregated for six major UK airports: Birmingham, Gatwick, Heathrow, Luton, Manchester and Stansted.

2. Figures use the 57 dB(a) contour, which the Government uses as the average level of daytime aircraft noise making the approximate onset of significant community annoyance.

22 October 2012