Examination of Witnesses (Questions 120
WEDNESDAY 19 DECEMBER 2001
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.
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.
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
(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.
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.
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.
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.
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 operationswe 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 routeswhat 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
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
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.
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
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.
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.