Transport CommitteeWritten evidence from the CBI (AS 114)

1. The CBI welcomes the opportunity to respond to the Transport Select Committee’s inquiry into the government’s aviation strategy. The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing, and Delhi, the CBI communicates the British business voice around the world.

The CBI published a refreshed position on aviation capacity in the first quarter of 2012, underlining the urgent need for action. Over the past year we have seen a change in political gear in the debate and building on positive messages in the Autumn Statement and Budget, we have heard a renewed commitment from the Prime Minister and Chancellor to provide long-term solutions to the challenge of rising demand, particularly at the UK’s hub airport. This has resulted in a number of announcements as well as publications—the Department for Transport’s draft Aviation Policy Framework (APF), a new inquiry from the Mayor of London, the Davies Commission’s forthcoming call for evidence on hub capacity and this Transport Select Committee inquiry.

In response to the committee’s inquiry, the CBI proposes that:

2. A future aviation strategy must have growth at the heart of its delivery

The aviation sector is a huge contributor to the UK economy and supports exports and investment across the UK

To accommodate future growth, a new strategy must support point-to-point and hub links

Without action, investment will be hindered and UK firms will be held back, unable to reach their full international potential.

3. This strategy must be all-encompassing—one which addresses short, medium and long term solutions to the capacity problem

In the short term, improvements to surface access, mixed mode operations, reducing the burden of APD and a review of the visa application system must be explored

In the medium term, we must see new runway capacity to serve the demand in the south and improvements to public transport to our airports

In the long term, all options must be explored, including the development of a new hub

4. Environmental goals do not have to constrain sector growth—greener aviation and growth across the industry must be more greatly aligned

Meeting the emissions reduction challenge is key to delivering a sustainable strategy—inclusion of aviation in the EU Emissions Trading Scheme is a welcome step forward

A balanced approach must be taken to noise abatement policies

5. A future aviation strategy must have growth at the heart of its delivery

The aviation sector is vital to the UK economy. As well as contributing directly to the Exchequer through job creation, the industry opens up international gateways and enables our economy to grow through investment and exports. Both the UK’s hub and point-to-point links are crucial to this growth. A future strategy must recognise the value of these connections and their contribution to the UK economy. The CBI has commissioned further economic analysis to put the spotlight on this relationship, which we will be able to share with this committee at a later stage in the inquiry.

6. The aviation sector is a huge contributor to the UK economy and supports exports and investment across the UK:

The aviation sector contributes £46.9bn to the UK economy.1 It directly creates 920,000 jobs across the country and supports a thriving tourism industry, with 73.5% of visitors arriving by air.

7. The aviation industry also provides a gateway for new trade links with emerging markets, vital for future economic growth—the CBI has already highlighted how re-orienting UK exports towards high growth markets could lift GDP by £20bn by 20202. Further, this year’s Budget focused on growth and on driving an economic recovery powered by investment and trade. To achieve this, and to meet the Chancellor’s ambition for the UK to more than double its exports to £1 trillion a year, it is vital that the UK is served by the international connections necessary for trade.

8. The UK’s international connectivity has an impact on the UK’s attractiveness as a place to do business. The CBI/KPMG 2012 infrastructure survey, Better Connected, Better Business, found that the quality of international transport connections is an important factor for investment decisions for 65% of companies.

9. To accommodate future growth, a new strategy must support point-to-point and hub links:

Both the UK’s hub and point-to-point airports play an important role in supporting economic growth. Our regional airports provide direct links to the most popular destinations in Europe and beyond. By pooling transfer passengers from across the UK and internationally, our hub airport at Heathrow supports a network of global destinations that would be uneconomical to serve on a point-to-point basis from other airports in the UK. We need a strategy that reflects both these complementary functions—and supports them to develop to the wider benefit of the whole UK economy.

10. The government’s Aviation Policy Framework (APF) must clearly articulate the economic benefits of increasing the UK’s hub and point-to-point links. Currently, although it recognises the benefits Heathrow’s hub connectivity provides to the economy, it does not set out a clear vision for how this will be maintained beyond a short term perspective on potentially extending operational freedoms, minor improvements to the border regime and medium term improvements to rail surface access. Further clarity and greater vision for policy action to support our point-to-point links is also needed, and is currently lacking in the government’s draft APF document.

11. The CBI is in the process of undertaking analysis on the benefits of hub and point-to-point links to the UK economy. This analysis will focus on the patterns of growth for hub and point-to-point air links, as well as the links between direct air routes and trade investment flows between the UK and five other EU economies as well as the fastest growing emerging economies. Following the publication of our analysis, the CBI would welcome the opportunity to provide evidence to the Transport Select Committee on our findings.

12. Without action, investment will be hindered and UK firms will be held back, unable to reach their full international potential:

Businesses have told us that despite the importance of international connections to their investment decisions, the availability of direct flights to emerging economies is an increasing concern: 54% of companies who deem direct flights to China crucial are dissatisfied with current availability. Our competitors are already serving more routes to high growth markets than the UK: for example, 176 destinations in 90 countries are served by flights from Heathrow with two routes to mainland China, whereas in Frankfurt, 225 destinations in 111 countries are served with six routes to mainland China3. Without action, the UK risks becoming a branch-line destination on the route map of global airlines. This is a damaging break in the UK’s export chain.

13. This lack of connectivity has the potential to limit foreign direct investment in the UK. If we are to achieve increased trade with high growth economies and retain our reputation as an attractive place to invest, the government’s strategy must ensure that the UK remains a world-class business destination.

14. This strategy must be all-encompassing—one which addresses short, medium and long term solutions to the capacity problem

The aviation strategy must balance support for thriving point-to-point airports across the UK with measures that address the impact of capacity constraints at the UK’s hub airport, delivering for passengers and freight traffic. It must also balance short-term measures to address capacity constraints, with a clear plan to sustain growth in the medium and long term.

15. In the short term, improvements to surface access, mixed mode operations, reducing the burden of APD and a review of the visa application system must be explored:

In the short term a number of measures should be implemented to improve our airports to help support and expand their operations. Tough choices, such as mixed mode operations at Heathrow, must be made to maximise the efficiency of existing capacity to “bridge the gap” from now until a more substantive decision is made. Other smaller measures, including surface access improvements, could also be reviewed to support current aviation in the UK. Already the government has announced the go-ahead for key surface access projects—the new £500m western rail link from Heathrow, and the £50m station upgrade at Gatwick, for example. The government must now build on these announcements and, as part of its interim report in 2013, the CBI will urge the Davies Commission to take forward some of these short term measures as a matter of urgency.

Surface access improvements: The CBI proposes key surface access improvements to help link our road and rail routes better to our existing airports. The government has already sensibly prioritised a number of key transport schemes in its National Infrastructure Plan 2011 and more recently, the government’s draft aviation policy framework announced further targeted surface access improvements to a range of UK airports including Heathrow, East Midlands Airport and Gatwick. In total, over this spending review period the government has proposed to invest £1.4 billion in rail and road schemes, which will directly or indirectly benefit airports across the UK. This is welcome news but we must ensure that these projects are implemented as a matter of urgency.

Fast-track mixed mode operations: The CBI urges government to use the APF to permit consideration of the only serious measure left to improve operations at Heathrow in the short term. It should provide a clear signal for the Davies Commission’s interim report at the end of 2013 to consider a fast-tracked move to “mixed mode” operations at the airport. Extending existing trials of “operational freedoms” at Heathrow—in which the airport can temporarily use both runways for departures or arrivals at times of acute delays—to “mixed mode” operations, with Heathrow able to operate both runways flexibly more permanently, could in theory unlock 10% in capacity, which could be used to increase the airport’s resilience and give some capacity “headroom”. This would necessitate changes to the respite regime for local residents. In order to get the maximum capacity yield from mixed mode operations, a number of ground improvements would need to be made at Heathrow Airport. These improvements would be subject to planning permission from local authorities.

Reduce the burden of APD: The government’s current draft APF document notably avoids the question of taxation, but setting a clear and sustainable future for Air Passenger Duty (APD) is key to supporting a thriving aviation sector. The UK’s APD rate remains the highest air passenger tax in the EU and has seen significant increases in recent years. Following the Budget earlier this year, the CBI was disappointed to see that the government had not heeded on our calls to set aside the 2011 inflation increase (of 3%), deferred in last year’s Budget. This meant that we saw an above-inflation increase of 8% in April. There must be future restraint on changes to this tax: the government must balance the value of air travel’s contribution to the Exchequer with the potential impact of further duty rises on the UK as a place to trade and invest—this applies equally where APD is set to be devolved.

A review of the visa application system: The current UK visa application system is a barrier to entry and an additional cost to investors when looking to come to the UK. The UK short stay visa costs £78, compared to around £53 for a Schengen visa, which allows visitors access to 25 countries. This may have been a contributing factor to why France attracted eight times as more visitors from China last year than did the UK, and Germany six times more visitors than the UK.4 The burdensome form filling and administrative process needs to be reviewed if we are to attract business to the UK.

16. In the medium term, we must see new runway capacity to serve the demand in the south and improvements to public transport to our airports:

The Department for Transport projects future passenger demand to increase by at least 40% by 2030, which is the lowest of future demand forecasts. New runway capacity in the south would help to accommodate this demand. The CBI proposes that the only way the UK can continue to compete in the international marketplace and can unlock substantial capacity is if new runway capacity is implemented to take some of the strain off our current hub airport. We propose that this should serve the south of the UK—at Heathrow, Gatwick, Stansted, Birmingham or elsewhere—subject to an urgent review of the most feasible option to address the current constraints at Heathrow.

17. It is vital that the Davies Commission, when assessing the UK’s capacity needs, implements a medium term strategy to ensure that the UK does not fall behind its competitors, whilst a longer term solution is implemented.

18. Building on our short term measures to help improve surface access and reduce emissions around airports, increasing public transport access in the medium term, to UK airports from 40% to 60% by 2030, will not only boost surface access, further driving down environmental concerns, but would help to improve the UK’s connectivity to its point-to-point airports. Major infrastructure projects such as HS2 and the Edinburgh tram link, are good examples which will support the UK’s international connectivity.

19. In the long term, all options must be explored, including the development of a new hub:

Even with extra runway capacity in the medium term, aviation capacity constraints in the long term will still put a ceiling on the UK’s future growth. The CBI has therefore called for all options to be explored in the long term, including the development of a new hub airport for London.

The CBI believes that a successful hub for the long term should include the following characteristics:

Sufficient runway and terminal capacity to accommodate future demand projections, with headroom to ensure resilience

Excellent connectivity to London and the wider UK transport network

Capacity to accommodate passenger and freight traffic on a single site.

20. Environmental goals do not have to constrain sector growth—greener aviation and growth across the industry must be more greatly aligned

Continuing to meet the emissions reduction challenge is key to delivering sustainable aviation development, in line with the Committee on Climate Change’s vision for growth in the sector up to 2050. Industry is committed to meeting the challenge, and is already innovating and responding to reach environmental targets: for example, the Rolls Royce Trent 1000 engine—which entered service in 2011 on the Boeing 787—has 12% lower specific fuel consumption than the Trent 800 engine, which entered service in 1996. Similarly, the Trent XWB engine—due to enter service on the Airbus A350 XWB in 2014—will be over 15% more fuel efficient than the first Trent engine, which entered service in 1995. It is clear that with increasing sustainable improvements across the sector, aviation growth should not be constrained solely on environmental grounds.

21. Meeting the emissions reduction challenge is key to delivering a sustainable strategy—inclusion of aviation in the EU Emissions Trading Scheme is a welcome step forward:

In the absence of an international agreement to establish a global aviation emission trading scheme, the inclusion of aviation into the EU Emissions Trading Scheme (ETS) is a welcome step. Whilst we support the inclusion of aviation into this scheme, we are concerned about the impact this is having on the UK’s ability to trade. With a number of countries opposed to the scheme, we must ensure that this contention does not have a lasting knock-on effect on EU trade relations. It is vital that governments reach a durable solution on how to make the scheme more workable for all parties involved and must work constructively at an EU level, pushing for the International Civil Aviation Organisation (ICAO) to work towards a global deal.

22. A balanced approach must be taken to noise abatement policies:

As part of a competitive service in the logistics industry, night flights are used where express packages are collected towards the end of the business day for delivery early the following morning. These flights are crucial: a runway slot used by a single express service contributes about £63,000 in overall economic benefits to the UK through productivity (compared to a scheduled passenger service which contributes about £22,000).5 The freight industry recognises the environmental and social impacts of these flights and applies noise and emissions abatement measures accordingly. It is therefore critical that the government works with industry on the review of the current night flights regime at Heathrow, Stansted and Gatwick to ensure it continues to protect capacity for express freight links and a balanced approach is taken in future.

23. A successful aviation strategy is key to the growth of the UK economy and the government must take firm decisions as soon as possible. A seamless strategy must be implemented which integrates the work of the Davies Commission on capacity as well as the Department for Transport’s Aviation Policy Framework.

1 November 2012