Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 120 - 139)

WEDNESDAY 19 DECEMBER 2001

MR ED ANDERSON, MR KEITH JOWETT AND MR MIKE TOMS

  120. Also with cash flow?
  (Mr Anderson) Yes, extending credit arrangements.

  121. Mr Toms?
  (Mr Toms) I think the first thing which the BAA airports and other UK airports have tried to do to assist their airline customers and passengers here has been to facilitate the operations of the airports most efficiently over the period. So over a very difficult period, where passengers have been stranded, or where there have been longer security queues, we have focused on making sure that those inconveniences are minimised. In terms of financial mitigation, there has been some targeted mitigation, clearly it is very expensive—

  122. What does that mean exactly, Mr Toms? You mean you prefer some customers over some others?
  (Mr Toms) No, no we love all our customers.

  123. I am sure. I am just trying to find out what is a "targeted" form of assistance.
  (Mr Toms) Yes. Where there are small issues involving small periods of time and small transactions then we have tried to help with maybe a small delay or small mitigation of charge. The major issue surrounds landing fees, clearly, which are the largest charge paid by airlines to airports. This year we are entitled, from 1 April 2002, to raise our charges at London area airports by around three per cent under the Price Control Formula imposed by the CAA. Notwithstanding the fact that we have lost a great deal of traffic volume ourselves, we have now notified the industry of our intention to forego that price increase and freeze charges for the forthcoming year. Clearly the flaw is the fact that for the medium term we do need to conserve cash and create cash to facilitate the investment programme because in the long term we have to look to traffic coming and being able to invest for the future.

Mr O'Brien

  124. I am often questioned by my constituents about airport surcharges. How do they apply and is there any room there to help the travelling public with reducing surcharges?
  (Mr Anderson) Surcharges, which I think you are referring to, come from the tour operators. They are entirely fixed by the tour operators and presumably by reference to price that they face at individual airports. As far as my airport is concerned, we try and keep, as far as possible, comparable with Manchester, which is our main competition on the charter side.

  125. The whole aspect of that is with the tour operators, nothing to do with the airports?
  (Mr Anderson) But we raise it in our discussions with the tour operators to try and minimise the differential to really meet the point that you have raised.

Chris Grayling

  126. Can I get a sense from you of the actual scale of the current downturn in traffic and what are the implications of that downturn if we are then looking at the whole capacity issue in the South East? Are there any conclusions we can draw as we plan for recovery? Are there consequences for the way we go about thinking about the next stage of redevelopment in the South East?
  (Mr Anderson) Shall I start, Chairman, and I am sure my colleague will want to come in. If you compare the situation in August when most airports were experiencing an increase in traffic year on year compared with the year 2000, and compare that with November, then you will see, for example, my own airport was slightly up in August, 26 per cent down in November. I will pick out one or two others. Newcastle 14 per cent up in August, 17 per cent down in November. I will let my colleague speak for the BAA. Birmingham was 5.6 per cent up in August, 4.7 per down in November. Manchester 8 per cent up in August, 11 per cent down in November. There has definitely been an impact. It has varied between different airports. There are lots of other factors, of course, because November we are comparing with probably the worse month last year of the rail difficulties. Whereas my airport is 26 per cent down this November, last November we were about 16 per cent up. So the underlying drop in our case is 10 per cent. I will come back in a moment, if you like, on how long I think the downturn will last which was the other point you asked.

Chairman

  127. Do tell us.
  (Mr Anderson) Okay. Obviously it is guess work. We are extremely concerned about the charter side and, as Mr Parker-Eaton said, we just do not know. I would share the view that has been expressed by others that it will probably be around 18 months, two winters and a summer. So I would hope by this time next year we would be beginning to see something approaching normal.

Chris Grayling

  128. That would suggest there are not any long term implications for the planning of airport capacity?
  (Mr Anderson) No. We firmly believe the medium term position is really as it was prior to 11 September and the need for additional airport capacity is as profound as it was when we made that case.

Chairman

  129. Did you want to add to that, Mr Toms?
  (Mr Toms) If I may give a perspective on our airports. Just looking at the November traffic figures, you can see a wide disparity in the impact between different airports. Heathrow had 13 per cent less passengers than the previous year, the same month the previous year; Gatwick had 20 per cent less; Stansted has 7 per cent more; London overall was down 13 per cent; Scotland was up 4 per cent; so the group overall was down around about 10.5 per cent; that in itself was a slight improvement on October which was minus 12. We see a very gradual pick up now in traffic. In relation to the markets, I think the statistics are very stark. The domestic market in November was down about 8 per cent; the Irish Republic market was up 10 per cent; European scheduled minus 8 per cent; European charter minus 3 per cent; North Atlantic minus 26 per cent and other long haul minus 13. You can see the difference in traffic between airports reflects the different constituency of their markets. In relation to the question about the implications of this for long term airport capacity development, our view is that traffic will return, it is a question of how long it will take to return. It will return, it will recover and the long term demand for traffic growth will resume. We have to plan on the basis that we will still need to accommodate traffic growth at the same level over the same long term period.

Chris Grayling

  130. It seems to me what you are describing in part is a potential sea change in the nature of passenger carriage. What you are saying is Stansted has gone up and we heard the gentleman from easyJet describing their business. That would imply a very continued steady growth in the no frills airlines. That has implications for you in the sense that if that growth continues, particularly given the fact that carriers tend to use smaller aircraft, that surely has capacity implications for existing airports?
  (Mr Toms) I can see why you might come to that conclusion. I think these figures reflect, also, a longer term structural trend. The low cost carriers at Stansted, it is worth bearing in mind effectively three carriers constitute the market and for that reason it is quite difficult to forecast forward because you are forecasting the prospects for an individual airline. It is true that the low cost carriers have smaller aircraft than the long haul flag carriers but it is true, also, that although their aircraft are smaller, they have typically higher average loads. They fill more of the seats which are available. They have very effective daily utilisation because the aircraft is on the ground less time, rotates more quickly and can be in and out of the airport four times a day. I do not think it would be wise to extrapolate directly from the growth of the low cost carriers an implication that capacity will be needed sooner than was previously the case. Our forecasts had already built in an assumption of continuing liberalisation of the markets and that kind of trend which goes with it.

  131. Finally can I ask you, particularly in relation to Gatwick but also in relation to other regional airports, if BA is likely to retrench many of its operations—we have heard already it has pulled out a number of suburban flights from Gatwick, there are reports it is going to continue to prune down a number of its routes—what are the implications for Gatwick and indeed for other regional airports which could be affected?
  (Mr Toms) If I may start with Gatwick on this. It was evident, I think, before 11 September that British Airways was finding its network at Gatwick more of a struggle than it had originally envisaged. Post September 11 we have now seen one wave of their service contraction. We do not know how big the next wave is going to be. There is a great deal of speculation but we have not yet been told of the outcome of the British Airways study. We hope they can keep a viable Gatwick network going. They have a strong brand there. They are important in terms of providing for the local markets around Gatwick, people who live around Gatwick who want to travel, and for providing effective use of the London system of airports. They need to operate at Gatwick to make the greatest use of capacity. However, we cannot keep them there, if they cannot make money and do not want to be there, we have to accept that. To the degree that they go, we envisage significant demand from other carriers to come in and take their slots. We are working now to find ways of facilitating a changeover of operations to other operators. It is important, I think, that British Airways, where they are not going to continue their operations, hand back slots in a timely and efficient way. That is a process we are trying to keep our hands very closely on.

  132. Do you think there is a question about their future there?
  (Mr Toms) At the moment you can only really take press speculation, of which there is a great deal, about British Airways' future at Gatwick. We do not know what the outcome of that is. We do know that they are looking seriously at a wide range of options.

Chairman

  133. You are presumably basing your view about other airlines wanting to come in on some kind of evidence? People are talking to you. You have some general indication.
  (Mr Toms) That is true, Chairman. We do have evidence, for instance, from easyJet that they wish to mount a larger Gatwick operation. We are trying to facilitate their coming in and taking some of the capacity which will be made available.

  Mrs Ellman: Can the low cost airlines maintain their growth?

Chairman

  134. Mr Anderson, 64,000 dollar question.
  (Mr Anderson) A very big question. Certainly the growth is quite remarkable at the moment. I think the low cost carriers are certainly here to stay. I do not think it is just a flash in the pan. Whether they can continue at the same level of growth is more questionable. Can I just say something about Gatwick, do you mind, following on from the earlier question? Very interestingly, my own airport, British Airways in their subsidiary company, British Regional Airways, announced before 11 September that they would start a Gatwick service. I was rather apprehensive that they might change their minds after September 11 but, to their credit, they did not, they went ahead. It has actually proved very successful.

Mrs Ellman

  135. Has the Government given enough support to security measures?
  (Mr Anderson) One of the fundamental points that we are making is that we feel the Government should target financial support on the specific instance where additional security costs have occurred as a direct result of September 11th, which was we have said we believe is an attack on a State rather than on the aviation industry. We do feel strongly that Government should do that.

  136. Is the Government doing enough?
  (Mr Anderson) We are not sure they are going to say yes so at the moment I would say no they are not doing enough.

  137. What would you like them to do?
  (Mr Anderson) We would like them to identify those additional costs that are directly a result of 11 September and compensate those who have borne those additional costs.
  (Mr Jowett) Chairman, if I may add to that. The security regimes' structures across Europe, of course, are radically different here in the UK from those that apply in Europe where the security services are either funded directly by the State or are controlled by the airport but the airport system itself is in ownership of the State. The recent additional costs that we have experienced in the UK airport system are obviously adding to those inequities. It is for that reason that our Chairman is emphasising that the Government should step in to pick up the additional costs which have been brought about solely as a result of an act of terrorism against the State. The point that we would make as an airport industry is it is going to be far easier for this Government to meet those costs where they arise, ie at the airport level, than to fund them through the airlines indirectly.

Chairman

  138. What percentage of extra security have you had to put in? Just give me rough terms, I am not talking about extra security measures. There has always been, in the last few years, a reasonable level of security in British airports, has there not? That is one reason why people feel reasonably safe using them. Could you give us some estimate as to the extra percentage of expense, to put it in terms of cash, you have had to put in?
  (Mr Toms) If I could give you the perspective from the London airports. In the period from 11 September to the end of this financial year we envisage that the costs of additional security arising from 11 September will be in the order of £4 million. That is a conservative number for two reasons. Firstly, some of the measures we have taken have been short-term measures which have not fully impacted on costs. For instance, we have asked staff in office occupations to back up security staff. In the long-term we will have to employ people for that.

  139. You have trained them, of course, Mr Toms?
  (Mr Toms) We have been very careful not to put them into any function where they have required training. For instance, directing passengers is something we hope they know how to do. We do not put them into looking at the screen examining suitcases. The other area where there may be additional long-term costs is as a result of any additional security measures which the Government decides to add from now onwards on reflection.


 
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