Transport CommitteeWritten evidence from Liverpool Chamber of Commerce (AS 63)

What should be the objectives of Government policy on aviation?
How important is international aviation connectivity to the UK aviation industry? What are the benefits of aviation to the UK economy? What is the impact of Air Passenger Duty on the aviation industry? How should improving the passenger experience be reflected in the Government's aviation strategy? Where does aviation fit in the overall transport strategy?

1. The aviation sector comprises a wide range of sectors and supports a large supply chain for supporting activities. All told it is estimated to account for 234,000 jobs and to contribute £18 Billion in GVA to the UK economy. This represents 1.5% of the UK's total economic output and 0.85% of employment.ⁱ Liverpool Airport serves over 5 million travellers a year and represents a major international gateway for Liverpool City-region and the wider North West. It constitutes a key asset within a wider "SuperPort" development comprising the Port of Liverpool, Manchester Ship Canal, Mersey Gateway (port and bridge) and the Mersey Multi-Modal freight distribution centre. The development will create 21,000 new jobs and contribute £6.1B in GVA to the city-regional economy by 2020.ⁱⁱ

2. We expect air travel by passengers to rise significantly in light of global population and prosperity patterns. According to the Airport Operators Association UK passenger and freight volumes between 1995 and 2008 increased by 81% and 33% respectively.ⁱⁱⁱ Increasing movements of people across borders—not least from and to the BRIC and N11 economies^iv—will lead to an unavoidable rise in the demand for international air travel during the next 30–50 years.^v

3. There are also significant prospects for growth and development at the domestic and regional levels within the UK, and particularly in Liverpool and the North West, which will generate increased demand for air travel over the longer term. These include the Irish Sea Offshore Wind programme; the Port of Liverpool Deepwater River Terminal; Liverpool and Wirral Waters (which include plans to construct a International Trade Centre comprising 230,000sq metres of prime office space); SuperPort; Mersey Gateway Crossing and the anticipated growth of the Visitor Economy.^vi

4. The role of aviation from the perspective of small and medium sized business is to permit access to new markets by providing efficient links for businesspeople to meet each other face-to-face (thereby building trust and goodwill to secure and service new business); to facilitate the transfer of high-value and time-sensitive goods to and from the UK; to increase visitor-spending by permitting tourists to visit the UK; to facilitate the movement of skilled personnel and students; to contribute to the well-being of the UK's residents and workers through affordable access to holiday destinations and to enrich the lives of both visitors and UK residents through cultural and knowledge exchange. Aviation is also increasingly important for accessing life-saving health services abroad in instances where these are not readily available through the UK National Health Service.^vii

5. In our experience the nexus of domestic and international air transport connections at the local and national levels are essential to business growth. The most innovative firms are also those which trade internationally.^viii This success is founded on the development of fruitful business relationships which in turn is predicated on trust for which person-to-person contact continues to be the most preferred means despite the availability of videoconferencing, social media and other modes of virtual contact.

6. The BRIC and N11 group economies are expected to become extremely attractive as both destinations and sources of new business investment. The UK's strengths in advanced manufacturing, higher education and arts and cultural industries will also draw increasing numbers of students and other collaborative interests seeking research and development opportunities from these countries.

7. UK aviation is led mainly by the private sector. It is therefore likely to be sufficiently flexible to manage a cost-effective transition to a low-carbon economy. In comparison to the rest of Europe however it is also the most heavily taxed and regulated which impedes the ability of the industry's players to respond to changes in market demand and patterns of global trade.^ix

8. APD represents a taxation regime which seeks to target and reduce passenger demand for air travel. However since the demand for air travel is relatively inelastic at higher income levels, the tax is unlikely to deter a core constituency of frequent travellers while proving regressive for those on lower incomes.^x This is a significant consideration for cities such as Liverpool where the average level of employment and wages continues to persist at levels below the national average in spite of recent strides forward and a step-change in the local economy.^xi

9. By seeking to dampen demand for air travel, APD also risks damaging the Visitor Economy which has been identified as an essential driver of growth for city-regional development and detracts actively from the Government's tourism priorities as spelt out in its recent Tourism Policy.xii APD will therefore prove neither effective nor equitable in achieving its original objectives (that is to increase economic growth, reduce emissions, and re-balance the UK economy on a wider economic and geographic basis). Our preferred option would see APD abolished altogether since, viewed in light of compliance requirements arising from the EU-ETS, APD amounts to a double-barrelled taxation regime. Recent evidence demonstrates that this will have a net detrimental effect on regional airports and economies.^xiii

10. By subjecting exporters to APD, Government policy seeking to achieve an export-led recovery is also at risk of being nullified, particularly in instances where UKTI, the FCO and BIS are working to prepare more businesses to sell their goods and services in overseas markets.

11. There is little evidence to suggest that the Aviation Policy Framework has taken sufficient account of the needs of airline operators. Airports outside London are finding it increasingly difficult to attract new route providers to business growth destinations as a result of APD in spite of Fifth Freedoms and the air space liberalisations proposed in the draft policy framework.

12. If APD reform is implemented then it should seek to convey corrective signals based on airport size or passenger volumes. This would reflect a more even-handed solution for smaller regional airports which are likely to be disproportionately affected by the tax, and to the regions more widely which have been more severely affected by the Recession as recent evidence demonstrates.^xiv

13. Given the high degree of competition across the aviation sector we believe that the exercise of consumer sovereignty is extremely effective in raising standards of passenger service at airports, on flights and surface links. A robust watchdog function should be exercised by the CAA and the Aviation Consumer Advocacy Panel.

14. Airports and airliners are also committed to ensuring the longer-term sustainability of their operations by reducing both direct and embedded carbon emissions across their supply chains.^xv In order for this development to proceed the aviation sector will require an enabling environment which provides positive incentives to reduce carbon emissions while allowing the growth of freight and passengers at regional airports across the UK.

How should we make the best use of existing aviation capacity?
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? Does the Government's current strategy make the best use of existing capacity at airports outside the south east? How could this be improved? How can surface access to airports be improved?

15. Regional airports should be viewed as key partners in the effort to rebalance the UK economy along wider geographic and economic lines. Extra capacity already exists at regional airports in the North West. These are not only well-placed but also necessary to relieve capacity constraints at airports in the South East.

16. However regional airports are also more vulnerable than their counterparts in London and the SE to movements in operating costs, ticket prices, incomes, consumer tastes and habits are therefore disproportionately affected by a taxation regime that fails to take account of their specific economic circumstances. In order to actively drive a rebalancing of the national economy Government should implement a differential taxation regime that permits regional airports to compete on a more equal footing with the larger airports of the South East by encouraging business passengers, holiday travellers and air freight forwarders to increasingly utilise airports outside London.

17. Information on the comparative cost of flights from regional airports and travel planning advice (eg on cost and carbon-optimal surface access connections) should be made available via a central database that allows travellers to make informed choices when planning holidays, business trips or other aviation dependent transfers. Integrated links with social media, smart phone and other stand alone travel planning websites should be provided in order to provide a higher-quality, seamless experience for businesses and tourists.

18. Recent evidence from the United States suggests that a network which is more spatially distributed and densely interconnected would introduce greater resilience into the national and international freight and passenger transport systems available to the UK.^xvi It would also support regional economic development in the North-West while relieving capacity at airports in London and the South-East.

19. Bus operators working with PTE/ITA in Liverpool City-Region are already working together under the Local Transport Plan to improve surface access to Liverpool Airport and to de-carbonise local public transport provision. Renewed momentum through targeted publicity, pilot schemes, rewards and grants should be offered at regular periods in order to ensure long-term commitment to this agenda.

20. The role of the proposed High Speed and Conventional rail networks in improving surface access to non-London airports should be recognised. Direct links between key regional airports and High Speed stations will promote intermodal compatibility between aviation and rail. Liverpool Chamber has made the case for the construction of a high-speed spur to serve Merseyside via Liverpool South Parkway Station (which also serves Liverpool Airport) and the Waterloo and Wapping tunnels to Liverpool City centre.

What constraints are there on increasing UK aviation capacity?
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? 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? What is the relationship between the Government's strategy and EU aviation policies?

21. Key sources of carbon emissions and wider environmental impacts associated directly with airport and aircraft operations include landside vehicle emissions; airside vehicle emissions; aircraft emissions; aircraft operations; night time operations; total terminal energy consumption; power supply and distribution system losses; aircraft congestion and delay; passenger vehicle traffic; existing airline/airport environmental footprints; trucks and commercial traffic (congestion); loss of wetlands; engine run-up and testing; storm water contamination, and; waste energy from buildings.^xvii

22. Since the aviation industry is in fact an amalgam of a range of different sectors led by mostly private businesses (airports, airlines, freight forwarders, aerospace manufacturers, retailers, food and beverage providers etc) which account for a large number of jobs and associated skills, tax revenues and economic output, the DfT should seek to achieve carbon reductions from each sub-sector of the aviation industry within a wider industrial carbon reduction framework by designing positive incentives aimed at assisting a holistic, industry-wide transition to low-carbon operations while ensuring that companies are capable of remaining commercially competitive and viable. For example, innovative schemes designed by DECC to encourage the take-up of renewable energy and other energy efficiency measures (eg the RHI, FIT, Green Deal and Energy Company Obligation (ECO)) provide a good example of the kind of approach supported by the Chamber in order to ensure that where long-term and commercially challenging action is required, companies within the aviation sector and its wider supply chains are adequately supported, informed and incentivised to meet the full social cost of their operations.

23. Each city-region is now required to produce a "Mini-Stern" strategy which outlines plans and priorities for achieving a low carbon transition. Policies to assess the practicable scope of local action aimed at reducing aviation-related emissions should be examined.

24. Biofuel offers significant carbon and cost savings for road-based transport and is likely to deliver similar benefits for aviation.^xviii However significant barriers exist in the depth and dissemination of research, development and purification processes to jet-fuel standard. Ensuring an uninterrupted supply of biofuel will also become increasingly important vis-à-vis demand from competing users across other transport modes. Information and awareness for airliners and developers will be key to ensuring an early consideration of biofuel in the design and manufacture of future aircraft engines.

25. Airport and Airline Operators could aim to achieve globally-recognised environmental management standards such as the ISO14001. Key players within the industry could also be required to include carbon reduction plans (eg alongside airport master plans) to demonstrate how they intend to meet carbon reduction targets.

26. The Chamber believes that the EU-ETS is the correct policy lever for achieving co-ordinated action on climate change at a supra-national level. Its effectiveness in meeting its stated objectives remains to be assessed—however any additional forms of taxation or unilateral measures taken at the domestic level would prove crippling to the industry as laid out in our response to HM Treasury's consultation on Air Passenger Duty in 2011.

Do we need a step-change in UK aviation capacity? Why?
What should this step-change be? Should there be a new hub airport? Where? What are the costs and benefits of these different ways to increase UK aviation capacity?

27. Sufficient aviation capacity currently exists but should be unlocked for both passengers and freight across the UK in the short (0–5 years), medium (5–15 years) and long (15–30 years) terms.

28. In the short-to-medium terms the only additional capacity currently available to the UK lies at regional (non-London) airports. A sustainable policy framework should aim to relieve demand on constrained airports in the South East through active policies to prioritise the utilisation of existing airport capacity outside London in order to meet the Government's deficit-reduction aims, economic rebalancing objectives and to improve both connectivity and prospects for greater inward investment in sub-national areas.

29. A report on the economic impacts of hub airports commissioned by the British Chambers and Future Heathrow in 2009 suggests that creating a new hub airport in the SE would deliver similar capacity benefits to a third runway at Heathrow. However any new hub—whether envisaged as a sixth airport or an expansion of facilities at "second-hub" alternatives—would be far more costly to construct in terms of time, carbon and associated infrastructure in comparison to a third runway at Heathrow. In either case there are substantial benefits accruing to regional airports and economies as the report's findings demonstrate.^xix

30. From a city-regional perspective it is preferable for businesses based outside of London to be able to interchange at Heathrow as the country's main hub airport. Liverpool Airport lost its flight links with London in 2007. While alternative links with hubs in Europe and beyond could be developed our experience suggests that this results in average journey times that are far greater for interlining passengers in comparison to overall journey times otherwise facilitated by a feeder link to Heathrow.^xx As such, connectivity with a domestic hub would help to deliver reductions in both cost and carbon of regional travel while improving the convenience and competitiveness of business travel from the Liverpool City-Region and the wider North-West.

19 October 2012

References

ⁱ Oxera (2009): What is the Contribution of Aviation to the UK Economy? Final report prepared for the Airport Operators Association (AOA).

ⁱⁱ The Mersey Partnership (TMP) (2010): SuperPort Action Plan – Delivering Economic Growth 2011-2020.

ⁱⁱⁱ Oxera (2009): What is the Contribution of Aviation to the UK Economy? Final report prepared for the Airport Operators Association (AOA).

^iv Goldman Sachs (2009): The N-11: More Than An Acronym. Global Economics Paper No. 153.

^v ICAO (2008): Global Trends in Air Transport: Traffic, Market Access and Challenges.

^vi For further information on these programmes see www.merseyside.org.uk; www.liverpoolwaters.co.uk; www.wirralwaters.co.uk.

^vii NIHR (2010): Implications for the NHS of inward and outward Medical Tourism. Available from http://www.hsr.nihr.ac.uk/.

^viii BIS (2010): Internationalisation of Innovative and High Growth SMEs. Economics Paper No. 5.

^ix IATA (2006): European Aviation Taxes. Economics Briefing available at: http://www.iata.org/whatwedo/Documents/economics/EU_Taxation_June_06.pdf.

^x IATA (2008): Air Travel Demand – Economics Briefing No. 09. Also see Chakravarty and Tavoni (2009): Air Travel Demand and Income: Empirical Investigations and Future Scenarios. Princeton University.

^xi Liverpool City Council (2011): Liverpool Economic Briefing: A Monitor of Jobs, Businesses and Economic Growth.

^xii DCMS (2011): Government Tourism Policy.

^xiii Frontier Economics (2011): The Impacts of Proposed Changes in Air Passenger Duty.

^xiv IPPR (2009): The Impact of the Recession on Northern City Regions.

^xv IATA (2007): Iata Calls for a Zero-Emissions Future. Press Release. 4 June 2007 and Sustainable Aviation Group (2012): Aviation Industry moves to Cleaner, Quieter Take-Off. Press Release. 26 June 2012.

^xvi Wuellner, Roy and D’Souza (2010): Resilience and rewiring of the passenger airline networks in the United States. Available from the Cornell University Library ArXiv Service.

^xvii These impacts are usefully listed in briefing document produced by the Green Airports Initiative co-ordinated by the Clean Airports Partnership: Colorado, USA. See www.cleanairports.com.

^xviii Monaghan, A. (2010): Sustainable Biofuels in Transport. Presentation at BIONIC National Seminar on Sustainable Biofuels in the Community. Blackburne House, Liverpool: 28 April 2010.

^xix BCC (2009): The Economic Impact of Hub Airports.

^xx BCC (2009): The Economic Impact of Hub Airports.