Transport CommitteeWritten evidence from the British Chambers of Commerce (AS 72)

About the BCC

1. The British Chambers of Commerce (BCC) is an influential network of 52 Accredited Chambers across the UK. No other business organisation has the geographic spread or multi-size, multi-sector membership that characterises the Chamber Network. Every Chamber sits at the heart of its local business community, providing representation, services, information and guidance to member businesses and the wider local business community.

Overview

2. The BCC welcomes the opportunity to respond to the Transport Select Committee’s inquiry into the government’s aviation strategy. We would also welcome the opportunity to give oral evidence on this issue, representing 104,000 companies with five million employees, amongst which are a huge number of companies dependent on a strong aviation strategy.

3. Tough decisions are required if the UK is to have an aviation strategy that will allow companies to grow their exports with the rest of the world. Unfortunately, the government has continually failed to take those tough decisions since it came to power.

4. Businesses have been left dismayed at the way aviation strategy has become a political plaything. It is wrong that key decisions on capacity and on maintaining the UK’s hub status have been delayed for purely political purposes.

5. It is possible to increase capacity in the South East, strengthen our regional airports, and support the development of more connections to emerging markets. All it takes is courage. Otherwise, the UK will lose both investment and jobs, due to political indecision, which weakens the resolve of private-sector investors who ready to construct new capacity, as well as the business investment and airline industry investment that would follow.

6. The BCC’s response to some of the specific questions posed in the consultation document can be found below.

Responses to Specific Questions

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

7. There is a need to create a strong, rebalanced economy, powered by a growth in the exports of goods and services. If exports are to grow then businesses require access to a world-class transport network. And no form of transport is as vital for exporting businesses as aviation.

8. Britain’s lack of a clear, long-term aviation strategy is an impediment to economic growth and an indictment of political short-termism. Tough decisions have been put off for decades, leaving the UK’s global connectivity in a perilous position. An open, free-trade economy like ours requires an aviation strategy that is not a political plaything. British businesses want action, not talk, aimed at 1) increasing capacity in the South East of England, 2) strengthening our regional airports, and 3) supporting the development of more connections to emerging markets.

9. In recent decades, the ability of the UK major airports to provide a world-class service has been undermined by lack of capacity. The primary objective of government policy should be to address these capacity issues. This will require taking the tough decision to increase airport capacity in the South East. And this is a decision should not be subject to any more delays.

10. Government aviation policy should also focus on strengthening regional airports’ international connections and improving the surface access to all airports. Well connected regional airports are vital for local economic growth, to provide short haul business and holiday travel, and to help relieve capacity shortages in the South East during extreme weather or other critical events.

Q1(a). How important is international aviation connectivity to the UK aviation industry?

11. The importance of aviation connectivity to the future success of UK airports has been demonstrated by numerous studies. As links to South East Asia and the fast-growing economies of Brazil, Russia, India and China (BRIC) become increasingly important, there is danger that UK airports will become uncompetitive unless connections to these countries increase.

12. Other European countries are currently winning the race for connectivity. Recent analysis by Frontier Economics shows that a lack of connectivity with emerging markets will push Heathrow into third place in Europe within the next 10 years.1

Q1(b). What are the benefits of aviation to the UK economy?

13. As an island and trading nation, the UK’s air connectivity with the rest of the world is of vital importance. And no other form of transport can match aviation in its speed, efficiency and global reach. The link between aviation connectivity and economic growth has long been recognised.2

14. Countries that are well connected are more attractive to multinational organisations when they are searching for locations to establish overseas operations. National inward investment agencies always promote their international connectivity, particularly air connectivity, as a means to attract foreign direct investment. For UK businesses, air transport provides access to international customers, suppliers as well as an international labour force.

15. Aviation connectivity is particularly important for those sectors characterised by internationalised, high-value products and services, dependent on mobile workforces and face-to-face relations. These include high-tech sectors, pharmaceuticals and financial and business services, all critical areas where the UK has a competitive advantage.

16. The statistics show how dependent the UK economy is on aviation. Some 40% (by value) of the UK’s exports go by air according to the Department for Transport. Similarly, over 30% of our imports by value, including the raw materials and parts that UK manufacturers process and finish, arrive as air freight.3 Over 2.3 million tonnes a year of traded products are now shipped by air in the UK.4

17. The consequences of a constrained air freight industry were brought into sharp relief by the eruption of the Icelandic volcano (Eyjafjallajökull) in April 2010. The eruption severely affected international airspace and air transport for close to a week. The estimated cost to global GDP was $4.7 billion and UK businesses, especially those dependent on air freight were badly disrupted.5 Exports of IT hardware were damaged and pharmaceutical companies feared their products would perish, as exports failed to ship. The disruption affected imports too, with manufacturers running short of raw materials and parts to turn into finished products.

18. Research conducted by the British Chambers of Commerce in January 2012 highlights how business leaders in high growth or emerging economies see direct air links as vital to maintaining UK prospects in global markets. In conjunction with Heathrow Airport we surveyed 350 business travellers who are directors of companies in Brazil, India, China, Mexico and South Korea.

19. The survey found that nine out of 10 (92%) of these business leaders say direct flights influence their inward investment decisions, while eight in 10 (80%) say they would trade more with the UK if flight connections were improved to their home markets.

20. In a worrying development, while 82% of the overseas business respondents see Heathrow, the UK’s hub airport, as being a major contributor to the UK economy, 64% believe the UK will miss out on economic growth because of London’s declining flight connections to growth markets. A similar proportion (67%) feel that better air connections with France, Germany and Holland mean they are more likely to do more business with those countries rather than the UK, 62% will only consider trading with the UK in future if flight connections to their home markets are strengthened.

Q1(c). What is the impact of Air Passenger Duty on the aviation industry?

21. In a report we commissioned in October 2011 on aviation we focused on the impact of Air Passenger Duty. In the report, we called on the government not to raise levels of APD further. We also recommend the government considers offsetting its overall tax take from APD, by the same amount the Treasury will receive from the aviation sector in new auction revenues, following aviation’s entry into the EU Emissions Trading Scheme in 2012. This will ensure that businesses and travellers are not subject to double taxation.

22. APD has increased by 140% to EU countries, and for long-haul routes by up to 325% since 2007, and its top rate is some 8.5 times the average of other countries in Europe that still levy a charge. Many European countries—including Belgium, Holland and Denmark—have abandoned their aviation taxes, due to the negative effects on their economies.

23. Many businesses believe that rises in APD have contributed to a number of key routes being lost at UK airports. Peel Airports (which operates Liverpool John Lennon, Robin Hood Doncaster Sheffield and Durham Tees Valley airports) provided analysis of lost routes in 2008.6 Following APD’s doubling in 2007 and its subsequent rises, Liverpool John Lennon lost six domestic, five European and two long haul (North America) services; and Robin Hood Doncaster Sheffield lost one domestic service, six European and three long-haul services.

Q1(d). How should improving the passenger experience be reflected in the Government’s aviation strategy?

24. Capacity constraints at the UK major airports are having negative affects on the passenger experience—with many of those passengers being businesspeople. An aviation strategy that will lead to greater capacity at UK airports will greatly enhance the overall passenger experience.

25. Not only will greater capacity result in a more pleasant experience at an airport it will also result in a higher level of flight frequencies. As demand for services grows, a constrained airport is unable to add new destinations or higher frequencies on existing routes without dropping other services. To be attractive for business travellers, services on these latter routes need to be frequent.

26. There is much that can be done now by government agencies to improve the passenger experience and make the UK a more attractive place to come to visit or to do business in. The recent problems experienced by UK Border Agency that led to long queues at Heathrow and other points of entry during the summer must be avoided in the future.

Q1(e). Where does aviation fit in the overall transport strategy?

27. The results of a survey we conducted in January 2012 in which over 8,000 businesses responded found that nearly a quarter of UK businesses (23%) said that domestic transport links are a concern and that one in five businesses (20%) say that poor transport connections are a barrier to trading internationally.

28. The survey highlights the need for a long-term strategy that is prepared to take action to improve and upgrade the UK’s ageing transport networks. Alongside delivering a clear aviation strategy, the UK needs to improve road, rail and ports infrastructure that will help tackle some of the major transport issues businesses face when trying to move their goods around the UK and globally.

Q2(c). How can surface access to airports be improved?

29. If the UK is to have a world-class aviation network this requires not just the up-grade and enhancement of existing airports but also the improvement of the passenger full journey from their home to the boarding gate. Investment is required in all forms of transportation to and from airports, with rail links and appropriate road capacity at the top of the list. All airports in the UK would benefit from better integration into the wider transport network.

30. The government must commit to the full implementation of the 2011 National Infrastructure Plan to improve integration between different modes of transport to the UK’s international gateways to help maximise the efficiency and competitiveness of the whole transport network.

31. The infrastructure plan identifies a number surface access schemes to airports. The government should commit to supporting further schemes in any future plan. One project could be the Stansted Express. For Stansted to be a strong part of the solution to capacity constraints in the South East it is critical to reduce the length of time it takes to get between London and the airport. The Stansted Express competes with commuter traffic on a line that is already at 100% capacity. The service takes 48 minutes end-to-end—well over the maximum 30-minute journey time thought to be consistent with demand for long-haul flight connections to the capital. To provide a reliable and fast route for traffic between Stansted and London would require the line to be four-tracked.

32. Considerations around high speed rail are relevant as well, as high speed rail would provide a good complement to airport access at Birmingham, Heathrow and elsewhere.

Q4(a). Should there be a new hub airport? Where?

33. Private-sector investors stand ready to invest in London’s existing major airports to increase capacity and maintain the UK’s ability to connect to key markets. While expansion at Heathrow, Gatwick and Stansted may represent a sub-optimal solution when compared to a brand-new hub airport, an improved London “airport system” is both achievable and pragmatic. Consider:

Heathrow’s owners stand ready to pay the £9 billion cost of a third runway, which the BCC has long supported.

Gatwick’s owners are conducting a preparatory study on the case for a second runway, to ensure that it could be built following the expiration of the existing planning restrictions in 2019. We would support any bid by Gatwick to expand after 2019.

Stansted has already spent £200 million planning a second runway, and could put that plan into operation as connectivity to the capital is improved and its existing spare capacity used up.

34. The British Chambers of Commerce believes that pragmatic expansion at all three major London airports may offer a solution that gets lost amid talk of new hubs either in the Thames Estuary or to the west of London.

35. While we are not against the construction of a new hub airport, we believe that the commitment of public resources required to make such a project happen may not be achievable in the medium-term—by which point our competitiveness could be irrevocably damaged. Pragmatic plans for expansion of existing South East airports must be pursued, even if a new hub airport is seen as a priority for the long term.

19 October 2012