Transport CommitteeWritten evidence from The Birmingham Chamber of Commerce Group (AS 57)

The Birmingham Chamber of Commerce Group (BCCG) consists of the Birmingham Chamber of Commerce, the Solihull Chamber of Commerce, the Lichfield and Tamworth Chamber of Commerce, the Burton and District Chamber of Commerce and the Chase Chamber of Commerce. The BCCG is one of the largest Chambers in the UK with 3,000 members and 20,000 affiliate members. Geographically the Chamber Group covers a large swathe of the West Midlands and closely mirrors the geography of the Greater Birmingham and Solihull Local Enterprise Partnership.

The Chamber Group is a vocal advocate of businesses issues and lobbies both local and national government in the Interest of Greater Birmingham plc.

I would like to thank the Transport Select Committee for giving the Birmingham Chamber of Commerce Group the opportunity to respond to your inquiry into the UK's aviation strategy.

The Chamber is clear that the UK's aviation strategy must serve the best interests of the entire country and businesses of all shapes and sizes. Unfortunately we believe that the current system fails to do this as it is too heavily focused on the South East. Each year millions of travellers from outside of the South East are forced to travel to Heathrow and Gatwick (which account for 78% of the UK's of all of the UK's flights to the world excluding Europe); or fly to European hub airports.

This damages investment into our regional economies (which is inextricably linked with connectivity) causes our business people to spend wasted hours travelling to airports and waiting for connecting flights.

We believe that aviation provision is distorted by Air Passenger Duty and the cap on landing charges at airports in London. The cap on landing charges is, in our view, no longer justified with the break up of BAA's monopoly on airports in the South East and distorts the market by holding down the prices of a scarce and valuable resource (landing slots at Heathrow). We believe that allowing the market to set prices would encourage airlines to begin to look away from Heathrow and at more sustainable and less congested airports outside of the South East.

Moreover we feel that APD erodes the profit margins routes from regional; airports to such a degree that these routes are no longer viable. We fear that this is damaging the competitiveness of the UK's regional airports and is thus acting as a barrier to growth and investment.

What should be the objectives of Government policy on aviation?

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

1. Aviation is vital to the success of UK plc. As commerce is becoming ever more international in its outlook—and indeed has begun to look beyond the traditional markets of Europe and the US—it is essential that UK plc has direct access to markets across the Globe.

2. Many members of the Birmingham Chamber of Commerce Group, from small and micro businesses to large multinational businesses, rely on aviation to export their goods and services and meet clients across the globe. With the exponential growth of digital connectivity our aviation sector has fallen behind as businesses of all sizes utilise the internet and other digital communications technology to source customers and suppliers. Unfortunately many businesses are then hampered by the UK's current aviation connectivity which disproportionately favours London and the South East.

3. Exporters tell the Birmingham Chamber of Commerce Group that aviation connectivity is vital to their business. Businesses tell the Chamber that modern communications have increased export opportunities and indeed the West Midlands has grown both its exports and imports dramatically since 2009. Businesses tell the Chamber that as manufacturers move their manufacturing and logistics strategy to the latest techniques such as KSK (customer specific harnesses) they need to fly ever more products on a daily basis to meet the logistics targets and Birmingham Airport is a key part of this strategy for businesses within the West Midlands. Where routes are not available businesses instead are forced to rely on airports further away: adding significant haulage costs. Indeed the Chamber is aware of one business located within the flight path of Birmingham Airport that is forced to import and export high value components via Heathrow due to a lack of connectivity in the West Midlands.

West Midlands Exports by Country Group		2009	2010	2011
Asia & Oceania		2,014	3,133	3,880
Eastern Europe (excl EU)		347	429	708
European Union		7,012	7,866	9,139
Latin America and Caribbean		225	459	580
Middle East and North Africa (excl EU)		818	1,025	1,056
North America		2,264	3,399	3,282
Sub-Saharan Africa		348	456	566
Western Europe (excl. EU)		545	709	953
Total West Midlands Exports		13,574	17,476	20,163
West Midlands Imports by Country Group
Asia & Oceania		3,753	4,793	5,340
Eastern Europe (excl EU)		293	224	288
European Union		10,506	12,096	13,674
Latin America and Caribbean		263	171	246
Middle East and North Africa (excl EU)		331	483	438
North America		1,404	1,517	1,795
Sub-Saharan Africa		201	271	246
Western Europe (excl. EU)		2,094	3,163	7,428
Total West Midlands Imports		18,845	22,717	29,457

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

4. APD is incredibly damaging to the aviation industry. However it is our contention that this question should go beyond the aviation industry. It is important that all industries and sectors are not damaged by unsustainable and uncompetitive tax regime however with regards to the aviation sector this is doubly important.

5. By definition Aviation is highly mobile and can easily choose to leave a market or avoid one completely. This is incredibly bad for our regional economies as the lower levels of demand (compared with airports such as Heathrow and Gatwick) means that APD eats into profit margins and makes otherwise attractive routes unprofitable.

6. So important is air connectivity that a survey in 2006 by the CBI found that 41% of businesses felt that the air transport network of a country was "vital" or "very important" when considering where to invest.1 This figure is 40% for the cost of labour, 34% for the cost of property and rent, and 38% for business taxation.2 Clearly then an area with poor connectivity is likely to struggle for investment when competing against well connected areas.

7. Virtually all UK airports have lost otherwise profitable routes due to APD. While this is bad for airports and leisure travels it is particularly bad for regions and businesses. A British Chambers of Commerce survey recently found that 92% of investors in emerging markets would not invest in a region with direct flights to their country. As such regions that have poor connectivity due to the additional costs imposed by APD are also loosing out in investment.

8. Moreover a lack of connectivity caused by APD means that passengers must travel to other airports. In practise this means European Hubs or Heathrow. This adds significant costs and time onto journeys for business travellers and distorts our view of aviation demand by channelling customers into the South East due to a lack of local connectivity. Basic logic dictates that all passengers would rather travel from their local airport.

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

9. Government should focus on creating an aviation system that does not damage supply and that accurately reflects demand. That is to say airlines that wish to fly from certain airports should not be faced with a taxation system that creates a commercial barrier to their doing so. Additionally Government should look at how to best serve passengers from their local airports rather than requiring them to travel to a congested and poorly connected airport in the South East.

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

10. Road, rail and air travel cannot be separated. They each contribute to the UK's connectivity. The Current aviation strategy means that our roads and railways are excessively congested due to 78% of all of the UK's flights to the world (excluding Europe) being from Heathrow and Gatwick. Passengers, with no choice but to fly from these regions, clog up our motorways and railways when these passengers could be better served at home.

11. Through ticketing should also be explored. In many cases it is possible to fly to Birmingham and arrive in Central London quicker than it is to fly via Heathrow due to delays at border control and stacking in the air.

How should we make the 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?

12. Resilience—Heathrow and Gatwick dominate the long-haul market, accounting for 87% of direct passenger flights from the UK to North America, 99% to Brazil, Russia, India and China (BRIC countries) and 78% to the rest of the world (outside Europe).

13. To boost resilience the Government must focus on boosting connectivity outside of the South East. Bad weather in this region or transport disruption effectively shuts Britain down to much of the world.

14. Passenger experience—to improve passenger experience the Government should focus on serving passengers via their local airports. Many passengers try to avoid Heathrow at all costs. Indeed a CBI survey in 2006 stated that when asked if access to air services was important to their business, of those who said yes, 49% cited easy access to Heathrow as "vital" (24%) or "very important" (25 percent), while 40% stated that access to an airport with direct links to Heathrow was "vital" (8%) or "very important" (32%). However fully 61% of businesses felt that it was "vital" (16%) or "very important" (45%) to have access to an airport "with direct links to a European hub airport.

15. Making best use of existing London Capacity—the CAA's 2010 Passenger Survey Report found that of the 65,668,000 passengers who used Heathrow in 2010: 73.0% (31,135,000) of Heathrow's 42,111,000 arriving/departing scheduled passengers were going to or travelling from London and the South East. 53.5 of its 26,000 chartered passengers were also travelling to or from London and the South East. The remainder were connecting flights. Excluding connecting flights (whose economic benefit to the UK is debatable) 73.9% of Heathrow's passengers are from the London and the South East. The Birmingham Chamber of Commerce Group believes that a significant amount of capacity within the South East could be freed up if regional air passengers were better catered for at their local airports. Around 11 million passengers from outside the South East use Heathrow each year (1–5 passengers if transfer passengers are excluded) placing significant burdens on Heathrow and the South East's infrastructure. A more difuse aviation model, whereby passengers are better served in terms of connectivity by their local airports, would provide a much more cost effective, sustainable and balanced aviation model.

16. Additionally we believe that Heathrow as the UK's main airport should focus on serving emerging markets and business centres throughout the world. There is little reason for Heathrow to serve destinations such as Malia when it is so poorly connected to China.

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?

17. Heathrow and Gatwick dominate the long-haul market, accounting for 87% of direct passenger flights from the UK to North America, 99% to Brazil, Russia, India and China (BRIC countries) and 78% to the rest of the world (outside Europe). This statistic alone proves that the UK's current aviation strategy not only fails to make best use of existing capacity but fails to serve the UK adequately.

18. The Birmingham Chamber of Commerce Group believes that the landing charges cap imposed on London Airports must be ended. A precious resource must be process accordingly and at the moment the current regime is distorting the market.

19. The Birmingham Chamber also believes a regional rate of APD or equivalent taxation should be introduced whereby the Government would have some mechanism to encourage airlines to operate outside of the South East.

20. We must also end our dominant South West viewpoint that prevails across Whitehall and Westminster whereby it is assumed that it is entirely justifiable to expect passengers in Birmingham, Liverpool, Manchester and Leeds etc to travel to Heathrow to access flights to the destinations that they wish to access to but that it would be unconscionable to ask the same of London's travellers.

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

a. What should this step-change be? Should there be a new hub airport? Where?

21. The UK's aviation policy does indeed need a step-change. However this change should not be to pursue a policy that continues to do the same thing but on an ever larger scale. Instead the Birmingham Chamber of Commerce Group believes that a more fundamental change is required: a change in the way government thinks about aviation supply and demand. Currently a significant proportion of the "demand" for aviation within the South East is being generated by the regions outside of the South East. These regions, despite having airports themselves, are unable to meet the connectivity needs of their passengers as airlines are drawn towards Heathrow by capped landing charges and the perceived prestige associated with it being the UK's main airport. Moreover Air Passenger Duty destroys the profitability of many routes from airports with lower demand outside of the South East.

22. This approach is clearly unsustainable. The debate around a third runway at Heathrow is as controversial today as it was when then current Secretary of State for Transport was a junior Minister in the 1990s and will continue to rage. Instead supply should be distributed across the UK to match the levels of demand that exist. It is unsustainable (economically, environmentally and politically) to channel an ever increasing number of passengers through one of the most congested parts of the country.

23. The UK needs a sustainable, long term and politically palatable solution to its aviation woes. This will not come about by building more and more runways in the South East. Instead existing capacity should be utilised to best effect. This would share the burden of aviation across the UK but more importantly would also distribute the benefits more evenly: benefits that at the moment are largely accrued within the South East.

19 October 2012