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

Memorandum by The Federation of Tour Operators (AT 16)


  1.  The Federation of Tour Operators is the trade association representing all the UK's major tour operators, including the leading vertically integrated UK travel groups Airtours plc, First Choice Holidays plc, Thomas Cook Group and the Thomson Travel Group. A list of our membership is appended (Appendix 1). Together our members take approximately 20 million customers on a package holiday each year, accounting for around 90 per cent of the package holidays sold in the UK each year. Our members employ directly more than 50,000 people. Their combined airlines represent a fleet of over 170 aircraft, taking passengers—virtually all British—on 40 million single trips a year, and flying from 21 UK airports.

  2.  The FTO exists to promote good standards and uphold good practice in all areas of package holiday provision. This means providing financial protection for our customers, managing health and safety responsibly, and promoting a regulatory framework for the industry that is fair and effective for both customer and operator. We are committed to providing the best value for money and quality of holiday possible.


  3.  Like all sectors of the air transport industry, the package travel industry has been seriously adversely impacted by the failure of the aviation insurance market and the dramatic increase in costs in the wake of the events of 11 September in the USA. In the immediate aftermath, FTO members collectively suffered customer welfare, repatriation and other exceptional costs of around £40 million. [7]

  4.  In terms of the impact on our market, it is undoubtedly the case that there has been a collapse in consumer demand, demonstrated across all our programmes but particularly noticeable in certain key destinations, most especially Florida, USA. At the present time, advance bookings for all destinations are running at 40-50 per cent less than we would normally have expected for this point in the season.

  5.  The Committee will be well aware of the results for the package travel industry of this "double whammy" in terms of increasing fixed costs and falling customer demand following September 11. Our members have been forced to react by cutting capacity. The four biggest vertically integrated groups, Airtours plc, First Choice plc, Thomson Holidays and the Thomas Cook Group, have all announced major redundancy programmes in recent weeks, affecting more than 2,500 employees. Smaller and specialist operators have been particularly hard hit and there have been 15 failures among ABTA members from September 11 to the present time, compared with just four in the same period last year.

  6.  A detailed estimate of the financial impact on FTO members of the increasing costs and falling demand, prepared to 31 October, is appended (Appendix 2). The Committee will understand that this information, which has been collated by an independent consultant on behalf of the FTO, is commercially sensitive material and we would request that these figures are kept confidential by the Committee. We are happy to provide the Committee with an update or with any additional figures which may be useful.

  7.  Both the immediate impact in the days following the attacks on the USA, and the impact on aviation which has been seen since, have in many respects been greater on charter airlines than on scheduled and no-frills operators, and their ability to mitigate this impact is also less. This is because of two factors: the consumer protection regulations which govern the sale of package holidays in the UK and the long booking cycles for package holidays.


  8.  Charter airlines have just one customer—tour operators. The sale of package holidays In the UK by tour operators is regulated by the 1992 Package Travel Regulations, which implement the 1990 EC Directive on Package Travel, Package Holidays and Package Tours. The Regulations however go further in some important respects than the requirements of the Directive. They require that:

    —  tour operators absorb any additional transportation costs (which include the additional security and insurance charges now being incurred), and exchange rate costs, to the value of 2 per cent of the price of each holiday. There is no such provision in the Directive;

    —  tour operators must absorb all such costs within 30 days of departure. This compares with 20 days in the Directive.

  9.  Because of these provisions, even those few tour operators who have reserved the right in their current brochures to impose surcharges have had to absorb these costs for bookings made since 11 September to date.

  10.  In contrast, the scheduled and no-frills airlines are not restricted from adding a surcharge to their prices to cover additional costs arising, and some UK airlines, including British Airways, have already announced that they are to do so.


  11.  It is a characteristic of tour operating that there is a very high proportion of fixed costs combined with slim margins. What is less well understood is that package holidays have a very long planning cycle. The costs on which the next summer season's brochure prices as well as hotel and air capacity commitments are based have to be crystallised many months before the passenger departure dates. Typically, brochures are published for a season which starts 12 months later. We have appended a diagram which shows the booking cycles for 2001-04 (Appendix 3).

  12.  In contrast with the scheduled and no-frills airlines, which are exposed for a relatively short period between the passenger buying a ticket and travelling, most package holiday bookings are made long in advance of the departure date. Brochures for Summer 2002 would normally have gone to press several weeks ago, and operators need to publish Summer brochures ready for the peak booking season in December and January. However, the likely insurance, security and other transportation costs which might apply to air-inclusive holidays next summer and currently impossible to estimate accurately.

  13.  This means that operators are forced to make an estimate of what costs might apply a year or more in advance. Estimate too low, and at the time of departure the operator will take a financial hit on each and every customer departing-a financial risk which may be too great for many operators to bear. Estimate too high, and although operators will discount their prices once costs are clarified nearer the time of departure, any customer booking in the meantime will be paying an additional premium. While in the normal pattern of costs, operators are able to make sensible forecasts based on what is likely and what has been the situation in previous years, in the current uncertain situation following the events of 11 September and with what may be a long military campaign in Afghanistan, it is impossible to make any sensible estimate of what costs might apply next summer and beyond.


  14.  The UK package travel industry is highly competitive and price sensitive. The FTO's members are working hard to restore consumer confidence and take sensible business decisions, to ensure a swift return to normal market conditions. However, the stark reality of the present situation is that without some support from public funds, and without Government support to give tour operators the flexibility to recover these extraordinary costs from the consumer, British tour operators will be in an untenable position with unquantifiable risks. There have already been casualties in our sector and there is no under-estimating the seriousness of this situation.

  15.  To help tour operators deal with this situation, the FTO is asking Government to announce provision for:

    —  compensation from public funds for the impact of the closure of airspace;

    —  support from the Government in alleviating the extra insurance and security costs, so that tour operators do not have to absorb these costs during the winter season (November 2001 to March 2002); and

    —  amendment of the Package Travel Regulations to allow us the flexibility to recover the extra costs which may arise from customers booking in the future.

  16.  In addition, tour operators welcome the Government's commitment to restoring confidence in the air travel sector and would be grateful for continued support in promoting the message that customers can have every confidence in Britain's air travel industry,


  17.  The FTO looks to the Government for compensation from public funds for the immediate impact of the closure of airspace following the events of 11 September. We have asked the Government to take into account that in addition to the closure of US airspace for four days in the immediate aftermath of the attacks, airspace in Israel was also closed following the attacks on the USA.

  18.  Whilst the major financial impact of the closure of airspace immediately following 11 September was on the airlines, scheduled and charter, we believe the Government should also acknowledge and compensate for the costs which have impacted directly on tour operators. Unlike scheduled airlines, the responsibility of tour operators to their customers extends beyond the provision of a flight and so when planes are grounded or diverted, they bear the cost of accommodating customers who cannot travel or have not reached their destination, and of repatriating those customers once airspace reopens, in many cases having to charter additional aircraft to make up for stranded planes. Tour operators were still repatriating customers stranded by the closure of airspace on 21 September. In addition, tour operators, unlike the scheduled and non-frills airlines have had to bear the costs of compensating customers whose holidays have been disrupted or cancelled.

 19.  Appendix 2, which is supplied in confidence, includes an estimate of the costs of the closure of airspace borne by tour operators. We are happy to provide the Committee with any additional figures which may be useful.


  20.  The EU Transport Commissioner, Loyola do Palacio, has asserted that it is the European Commission's view that in "most of the security-related" costs should be borne by the [Member State] Governments". [EC press release, 24 September 2001]. We endorse the Commission's view that in the short term the additional security related costs should be borne by public funds. Now that the terrible events of 11 September have demonstrated that an aircraft can be used as a deadly weapon, it is clear that airline security is a matter not only for airline passengers but is very much in the greater public interest.

  21.  The costs of security are varying from week to week at present and differ according to the UK airport from which flights originate, and also according to the destination airport. At present the average additional security cost is estimated at around £1.80 per passenger. This already represents a significant burden on the whole air travel industry. For tour operators, who bear the costs of additional security passed on to them by charter carriers, but cannot pass the costs on to customers (owing to the rules governing surcharges in the Package Travel Regulations—see paragraphs 32-37), the burden is the greater and the uncertainty over likely future costs more damaging.

  22.  We are happy to provide the Committee with any additional figures or estimates which may prove useful in relation to the security charges in effect at present.


  23.  The third party aviation insurance market effectively collapsed immediately following 11 September. The Committee will be aware that, following notification of the cancellation of airlines' war liability insurance cover on 20 September, the Government acted to fill the gap in cover that would have grounded British airlines, and provided an indemnity for third party war and terrorism liabilities above $50 million. The charge for this indemnity was waived for 30 days. On 22 October the Government acknowledged that the market had not been restored to anything approaching normal operation, and extended this scheme at no charge for a further 30 days.

  24.  The Government is currently offering airlines a choice between government and commercial cover for liability above $50 million from 24 November, when the current guarantee will expire. In effect this "choice" is not a realistic one for UK airlines, who have all chosen to take the Government scheme from 24 November because of the financially unattractive nature of the commercial proposal, and the continuing uncertainty surrounding the future of solvency of the relevant underwriters.

  25.  In contrast US Government has introduced a third party liability limit of $100 million until 21 March 2002. Even within the EU, different Member States have responded differently and this leads to competitive imbalances. The German government has extended its cover to 31 January 2002 and has deferred any decision to charge, to avoid disadvantaging German airlines against competitors from other Member States. We would like to see the UK Government following this example.

  26.  Tour operators do not believe that a proper market for third party aviation insurance can be or will be restored until the US airlines, which contribute around 80 per cent of the premiums in the market, return to the commercial insurance market from March 2002, when the US Government's guarantee of 180 days expires. Without the income from the US airlines, insurance brokers do not have the funds or the certainty to offer cover at a commercial rate.

  27.  We are concerned that the monthly expiry of the UK Government's guarantee, which has led to press reports suggesting that "Airlines breathe a sigh of collective relief . . ." [Evening Standard, 24 October 2001] damages public confidence in air travel.

  28.  The FTO believes that a public and unambiguous statement that the UK Government will act as guarantor of last resort for the same 180 day period as the US Government, that is to March 2002, would do much to restore confidence and put pressure on the insurance market to return to normality.

  29.  The FTO also believes that the UK Government should offer lower premiums on its own insurance scheme, in recognition of the lack of a genuine market and of the burden of uncertain and spiralling insurance costs.

  30.  Support during the period to March 2002 would be particularly welcomed by tour operators since it would give us come assurance through the winter season, during which we cannot pass any additional costs arising on to customers, that we will not be hit by spiralling and untenable insurance charges.

  31.  We are happy to provide the Committee with any additional figures which would be helpful in considering this matter.


  32.  As the Committee will understand, fundamental to any consideration of the impact of the events of 11 September on the package travel industry is the issue that under the Package Travel Regulations tour operators must absorb any additional transport costs, including increases in security or insurance cost, up to the value of 2 per cent of the holiday price, and all such costs within 30 days of departure. These regulations are more stringent than the EC Directive, which requires absorption only within 20 days of departure and does not include the "2 per cent rule".

  33.  FTO has asked the Government to amend the 1992 Package Regulations by:

    —  Removing the requirement for tour operators to absorb the first part of any surcharge up to 2 per cent of the value of the holiday (delete paragraph 11 (3)(ii)).

    —  Amending the prohibition on surcharging within 30 days of departure to within 20 days of departure (amend paragraph 11 (3)(i)).

  34.  By permitting this approach brochure prices may remain normal and competitive, without building in aviation insurance and security cost increases that may or may not in the event prove to be necessary, or have any bearing on the actual costs for departure dates up to a year later. Tour operators would have the flexibility to recover recover from customers any exceptional costs resulting from the events of 11 September, which were unknown at the time of booking, and this will we believe make a significant difference to the ability of tour operating businesses to survive the difficult period of increasing costs and falling demand.

  35.  We believe that consumers would prefer to have an "11 September" surcharge on the final invoice in the knowledge that the precise amount will be clearly attributed to the specific security and insurance charges applicable at the time. This is likely to be more transparent and more helpful than a guestimate rolled into a price increase, typically many months ahead.

  36.  These particular requirements in the Package Travel Regulations solely affect UK tour operators. The additional requirement to absorb the first portion of a surcharge to 2 per cent of the holiday price is not included in the EC Directive or implemented in any other Member State, so non-UK tour operators are in a more flexible position and have a competitive advantage.

  37.  Similarly, UK scheduled and no-frills airlines are able to surcharge their passengers on their own initiative, and in fact some UK airlines—including British Airways-have already announced their intention to do so. Without the same flexibility as other UK air carriers, and tour operators in the rest of Europe, UK tour operators are at a competitive disadvantage.


  38.  As a matter for the Department of Trade and Industry, we appreciate that the issue of the Package Travel Regulations is not strictly within the remit of the Committee. However, the Committee will know that the Air Travel Trust fund, which is part of the ATOL scheme of financial protection for package holiday customers administered by the Civil Aviation Authority, provides a back-up for the individual bonds that tour operators provide as a condition of their ATOL. If a tour operator were to collapse, and the bond lodged with the CAA were to be insufficient to cover all customer liabilities (perhaps since the operator has collapsed during the peak season) then the CAA would call on the Trust fund to meet those additional liabilities.

  39.  The Air Travel Trust fund has been in deficit since 1996, and its borrowing (of about £9 million) is guaranteed by the Secretary of State for Transport, Local Government and the Regions. The guarantee is currently for £21 million. The FTO believes that in the current circumstances, this guarantee may well prove inadequate to meet the liabilities which could arise.

  40.  The CAA, supported by the travel industry, has for some time been petitioning the DTLR for primary legislation to allow for a customer levy to replenish the Air Travel Trust fund. The Government has not yet found Parliamentary time for such legislation.

  41.  Should there be significant failures in the package travel industry, and the current guarantee prove inadequate, the only option would be an increase in the Fund's borrowings. We would be seriously concerned at the repayment implications for tour operators and their customers of such an increase in borrowings.

  42.  In addition, the FTO understands that the current uncertainty around the Trusts ability to meet its obligations means that any levy powers the CAA were given might be put into effect at short notice, relative to our long brochure lead times (which are explained in Appendix 3). As the Committee will understand, if a levy came into effect after brochure prices were published, and if tour operators were unable to pass this levy on to customers because of the limitations of the Package Travel Regulations, this would place an even greater financial burden on tour operators.

  Federation of Tour Operators

19 November 2001



  The members of the Federation of Tour Operators are:

    —  Airtours plc, Wavell House, Holcombe Road, Helmshore, Rossendale, Lancs BB4 4NB

    —  British Airways Holidays Ltd Astral Towers, Betts Way, London Road, Crawley, West Sussex RH10 2XA

    —  CIT (Holidays) Ltd Marco Polo House, 3-5 Lansdowne Road, Croydon, CR9 1LL

    —  Cosmosair plc Tourama House, 17 Homesdale Road, Bromley, Kent. BR2 9LX

    —  First Choice Holidays plc First Choice House, London Road, Crawley, West Sussex, RH10 2GX

    —  Hotelplan Ltd 10-18 Putney Hill, London, SW15 6AX

    —  Kosmar Holidays The Grange, 100 High Street, Southgate, London, N14 6FS

    —  Kuoni Travel Ltd Kuoni House, Dorking, Surrey, RH5 4AZ

    —  RCI Europe Kettering Parkway, Kettering, Northants, NN15 6EY

    —  The Thomas Cook Group Ltd PO Box 5,12 Coningsby Road, Peterborough, PE3 8XP

    —  Thomson Holidays Ltd Greater London House, Hampstead Road, London, NW1 7SD

    —  The Travel Club Ltd Station Road, Upminster, Essex, RM14 2TT

    —  Virgin Holidays The Galleria, Station Road, Crawley, West Sussex, RH10 1WW

Memorandum by the London Chamber of Commerce and Industry (AT 17)



  London Chamber of Commerce and Industry is the largest business organisation in the capital with more than 3,000 member companies together employing some 500,000 people. Part of the British Chambers of Commerce approved network, London Chamber is an independent institution, owned and directed by its members and democratically accountable to business of all sizes and sectors throughout Greater London. We are a not for profit organisation, raising £7 million each year from businesses and spending it on practical day to day support services.

  London Chamber offers a comprehensive range of activities. We introduce new contacts, expand trading opportunities and represent the interests of the capital's businesses both locally and worldwide. We offer expert advice, information and training, organise international trade missions and exhibitions, schedule seminars on important business issues and arrange corporate entertainment and social events to bring provide networking opportunities for business development.

  The London Chamber of Commerce and Industry runs two economic surveys per month. The London Monitor is a monthly survey, which gauges the opinions of some 300 Chief Executives and Managing Directors from a range of businesses across London. The second, the London Economic Research Programme (LERP) runs a series of economic modelling tests on London developed by NIESR[8] examining scientifically the economic indicators for the capital's well-being.

  London Chamber runs the London Business Transport Forum. This forum has a membership of 248 London businesses with a specific interest in transport issues. The London Business Transport Forum meets quarterly to provide an interface between business and political figures as well as to receive briefings from transport professionals.


  Aviation is vitally important to the UK economy. For every 1,000 jobs generated at an airport there are a further 2,500 jobs created in the economy. Heathrow for example (which we will see is the most severely affected airport from the events of 11 September) generates £3 billion a year in wages and supports over 200,000 jobs across the country[9]. Heathrow is worth nearly £5 billion every year to UK tourism revenues.

  London's international connections have been second to none in the world. This explains in large part why 65 per cent of the world's largest 500 companies are represented in London, why the capital is home to 539 foreign banks, more than any other city in the world[10], and why the 10 largest American software firms all have a facility within 30 minutes of Heathrow. Having said this, London's lack of infrastructure growth to date, may mean that the area does not retain its status as the international aviation hub of Europe. We have seen over recent months a downturn in confidence in the aviation industry. Without a return of confidence we fear the loss of this business investment.


  The latest NIESR forecast of workplace-based GDP growth for London for 2001 is 2.5 per cent. This forecast was made in October, and takes into account the events of 11 September. It compares with an outturn for 2000 of 4.0 per cent, reflecting the generally tougher economic conditions throughout the year. The Institute's forecast for 2002 has been cut from 3.0 per cent in July to 2.4 per cent, below the recent average, but still well above growth recession levels. These figures, which are based on NIESR's views of the UK and global economies and which are at the top end of the consensus, suggest that London's economy will remain in a basically healthy state.


  Turning to output by sector, for 2001 growth ranges from an increase of 6.1 per cent for business services to a fall of ¸1.5 per cent in manufacturing. The range is narrower in 2002, but the highest and lowest sectors remain unchanged, with business services posting growth of 4.7 per cent while manufacturing continues to dip, though now by just ¸0.6 per cent.

  Most sectors will have to prepare themselves for a year of lower growth in 2002 compared to 2001. The exception is the public sector, where growth is forecast to rise from 1.8 per cent this year to 2.6 per cent in 2002, reflecting the public spending plans announced by the Chancellor earlier this year. From some sectors, most notably hotels & catering growth in 2002 will be the lowest for several years. This may have the effect of making thinks appear worse than they are to businesses that have got used to ever-increasing rates of growth.


  This perception may be what lies behind the general mood of pessimism that has permeated London's businesses over the past couple of months. It should be noted that the mood was darkening before 11 September, and the events of that day exacerbated a collapse in confidence that was awaiting a reason to accelerate. This is reflected in the findings of the London Monitor, a regular monthly survey carried out among 300-400 of the capital's businesses by London Chamber of Commerce and Industry in conjunction with the Evening Standard.

  In the immediate aftermath of the terrorist attacks on America, the balance of economic optimism fell from +29 per cent to ¸59 per cent, the greatest monthly turnaround since the survey began. Though the negative balance lessened slightly in October to ¸48 per cent, other measures took a turn for the worse. Expectations about prospects for London have fallen from the mid-50s to close to zero, while prospects for respondents' own companies, formerly the most buoyant of measures, have tumbled from +65 per cent in August to +19 per cent in October.

Perceived Economic Impact post 11 September

  In addition to regular questions, the survey also poses one-off queries, In October, respondents were asked about the impact on their turnover immediately after 11 September and in the weeks following, and their expectations for the future. The main finding is that the immediate impact has lessened: although more companies (35 per cent) expect turnover to fall than expect it to rise (20 per cent) over the next few months, this is a smaller imbalance than immediately after the attacks.

  The effect does vary significantly by sector, however. Over the longer term, both the services and manufacturing sectors expect business to return more or less to normal over the next few months. Retail, on the other hand, remains very gloomy, with just 19 per cent of respondents expecting their business to recover against 54 per cent who expect it to fall. This indicates that London's retailers should be prepared for a difficult Christmas period.


  One example of this is Hamleys of Regent Street where not only has spending by tourists fallen by almost a quarter, spending by domestic shoppers has dipped by even more, suggesting a fear of entering city centres (though virtually no businesses asked by the London Monitor admitted to having cut back on social visits to the city). It is worth noting that pessimism is more marked in Central London than in the suburbs. However, this may reflect the greater preponderance of retailers in the Central London sample as much as any fundamental difference between the areas.


  One regular question asked by the Monitor is about companies' expectations of their own workforce size. For as long as this question has been asked, there has been a significant difference between what respondents expect for overall unemployment (generally up) and their own staff numbers (also generally up). As an example of this, in August the balance expecting unemployment to fall was ¸49 per cent while the balance expecting their own workforce to grow—a fundamentally opposite question—was +26 per cent. By October, however, while the unemployment balance had worsened to ¸73 per cent, own workforce expectations had radically shifted, and now stand at ¸11 per cent. It should be noted that the latter had been declining slowly throughout the year, confirming that much of the shedding of staff now blamed on 11 September was, in fact, in process long before that date.

Theatre Land

  We asked a question relating to the habits of business executives regarding their attendance of London theatres. Only 5 per cent say they have cut back on social visits to London restaurants and theatres Theatre-land does report a slump in sales, but this is more likely to be related to the reduction in incoming American tourists.

Taxi Industry

  The taxi industry is often considered a barometer for the London economy. The industry has been reporting a small down turn since the summer months although both statistically and anecdotally the industry claims that the down turn has been accelerated post 11 September 2001. The figures for Radio Taxi's Cabs[11] show consistent down turns throughout October and November of around ¸33 per cent.


  There is a well-reported reduction in transatlantic flights. In October's London Monitor we asked those questioned if flying habits had changed amongst executives in light of terrorist attacks. Thirty six per cent said they had experienced delays at airports because of security checks. Ten per cent of our respondents said that they have cancelled or postponed flights to the states, and 6 per cent said that they have cancelled or postponed flights to Europe. Seventeen per cent commented that they had postponed decisions about future holiday plans.

  Our members Virgin Atlantic initially suffered enormously in September but now report an increase in sales for October 2001 compared with October 2000. They largely attribute this increase to their aggressive low price marketing through tabloid newspapers.

  Our member BAA's monthly passenger statistics for September 2001[12] show a reduction in terminal passenger numbers in Heathrow (which handles the majority of transatlantic flights) by ¸13 per cent. Gatwick shows a reduction of passengers by ¸6 per cent with Stansted airport's numbers rising at 11.4 per cent. Stansted's passenger increase seems on the surface to illustrate the insulation of the domestic aviation market from the problems of 11 September, although a growth in revenue from short haul, domestic and no frills flights goes little way to protect the industry from the massive losses suffered by the transatlantic market.

  If we set Stansted's passenger figures against our members Luton Airport, we get a different story. Luton shows that there has been a significant impact on the domestic market. Luton reports that growth from August 2001 against August 2000 has been +6.7 per cent. However, although still increasing, Luton's growth for September 2001 has suffered a massive fall to +0.9 per cent. October 2001 shows a minimal return with growth recorded at only +0.95 per cent.

  London City Airport's passenger figures show a ¸5 per cent reduction comparing passenger movements from October 2000 with that of 2001[13]. These may be skewed by the bankruptcy of Sabena Airlines.

  Looking at passenger statistics of BAA airports only, the London area total growth is recorded for September 2001 at ¸8 per cent as against the BAA airports growth for Scotland, which records a healthy +8.2 per cent growth for September 2001.

  Many have argued that there was already a reduction in passenger activity prior to 11 September. BAA's records show a reduction in growth during the week of 3-10 September of ¸2.3 per cent at Heathrow, ¸1.3 per cent at Gatwick and still an increase in growth at Stansted 15.3 per cent. Although this records a slow down at Heathrow, the situation worsens dramatically for the week 12-18 September with a reduction at Heathrow to ¸21.7 per cent, ¸10.9 per cent at Gatwick and only 11.8 per cent at Stansted, and the situation only marginally improves throughout September.

  October figures[14] are similarly bleak with overall ¸14.9 per cent growth in the London region for BAA's London Airports but a Scottish total of +7.6 per cent growth.

  The sector that appears to be worst hit amongst the aviation industry is the area of cargo. BAA's statistics for September show a reduction for all airports for September with Heathrow recording a ¸21.1 per cent change, Gatwick recording a ¸25.4 per cent change, Stansted showing a ¸24.7 per cent change. Scotland's overall change for cargo has been almost equally bad with a reduction of ¸19.2 per cent overall Scottish airports.

The European Comparators

  European airports also appear to have suffered. A recent press release from Frankfurt Airport records that traffic results continue to be characterized by effects of the 11 September terrorist attacks[15]. Frankfurt Airport records a reduction of ¸13.9 per cent Passenger Growth, ¸11.7 per cent Airfreight growth and aircraft movements are down ¸2.5 per cent.


  The London Chamber of Commerce and Industry will continue to emphasise the direct relationship between good air services and economic prosperity, and would look to the Government and the Commission of the European Union to take every opportunity to support this view.

  The London Chamber believes that the UK Government should give assistance to airlines as outlined by the European Transport Council in their guidelines for assistance.

    —  It is important that the UK maintains similar conditions for the UK aviation industry as the US and France. This requires the UK to compensate carriers for the losses incurred from the closure of US.

    —  Cover the extra costs of security arising from 11 September.

    —  Maintain cover as insurer of last resort to allow airline operations to continue as normal.

    —  Announce a positive decision on Terminal 5.

    —  High profile government support and encouragement for air travel.

    —  High profile government encouragement for tourism in London.

19 November 2001

Memorandum by The Guild of Air Traffic Control Officers (AT 18)


  The Guild of Air Traffic Control Officers welcomes the opportunity to provide its views on the air transport industry post 11 September. We will confine our comments to specific areas of air traffic control and its regulation.

  We also wish to make clear that our comments are from an independent, non-aligned organization whose main concern is that of the safety of the travelling public and air traffic controllers who are our members.


  The immediate effect was a downturn in the number of aircraft movements which saw a drop of approximately 6 per cent at Heathrow and 16 per cent at Gatwick . A more drastic reduction was in the number of transatlantic flights both from the UK and continental Europe. Associated with this reduction was an even larger reduction in passengers carried on transatlantic routes.

  However, in the last month, movements have shown a reducing decline and some UK airports are seeing strong passenger growth with increases in excess of 15 per cent. Subject to there being no additional acts of terrorism in the next 6 months we would expected to return to pre-11 September traffic levels earlier than predicted.


  The financial effects on some ATS providers have been significant, with the reduction in passenger numbers and aircraft movements leading to a reduced revenue flow. In the case of the largest ATS provider, which is 46 per cent owned by the Airline Group, this has led to an accelerated programme of cost cutting in areas of staff (support and management), future projects and research and development.


  The Guild is sympathetic to the financial problems being experienced by some airlines and ATS providers, namely NATS. We are, however, critical of the speed and scope of the reductions in ATS ancillary areas and therefore wish to make the following points:—

    —  The continuing role of Government in NATS (it remains a 49 per cent shareholder with legal responsibilities attaching to this interest), is essential. If short term funding, in addition to that already provided by the Airline Group, is required, then it should be provided to ensure the integrity and safety of the system.

    —  Clarification in respect of the legality of the Airline Group disposing of assets belonging to NATS which remain 49 per cent publicly owned.

    —  Commitment to continue to invest in air traffic control infrastructure which is a cornerstone of the Government's PPP rationale.

    —  Air Traffic Controller training—the need for a joint initiative to ensure adequate recruits in order to meet the increase in growth which will occur in the near future.

    —  The use of tax revenues derived from the aviation sector should be channelled back into the industry to help overcome the short term funding shortfall in staffing, services and infrastructure development.

    —  The role of Government in the Safety Regulator and whether the funding arrangements (ie the cost recovery entirely from the aviation industry) remains appropriate for a safety function who's remit is primarily, to act on behalf of the consumer (ie travelling public).

  The Guild would be pleased to participate in a wider-ranging inquiry should the Committee consider it appropriate.

Richard Dawson


November 2001

Memorandum by Manchester Airport Group Plc (AT 19)



  1.1  This submission is made by Manchester Airport Group Plc. Manchester Airport Group is the holding company for (a) Manchester Airport plc (b) East Midlands Airport (c) Humberside Airport and (d) Bournemouth Airport. Additionally, Manchester Airport Group is also the holding company for Manchester Airport Aviation Services, Manchester Airport Ventures Limited and Manchester Airport Developments. All companies in the Group have substantial interests in the aviation sector.

  1.2  Manchester Airport Group welcomes the short inquiry that the Transport Sub-committee has decided to undertake into the ramifications for the air transport sector of the terrorist events of 11 September 2001. Manchester Airport Group (MAG) is of the view that this timely response and intervention will facilitate a broader consideration of the key issues confronting British Airports in general and MAG in particular.


  2.1  The terrorist attacks of 11 September were monstrous acts and an affront to civilisation and have been condemned as such by a plethora of Nation States. Manchester Airport Group echoes this condemnation and denounces these acts for what they were: acts of unparallel barbarism that resulted in the loss of lives of thousands of innocent people of all nationalities, some of them British.


  3.1  The use of commercial passenger aircraft as an instrument of terror had a devastating and immediate impact on consumer confidence in air travel, in a way never before experienced in the history of commercial aviation. The impact of this lack of confidence on the global aviation sector has been well reported and documented in the press.

  3.2  It is critical, even crucial, to make the point the USA terrorist attacks were not against aviation per se. Like all terrorist acts, these attacks were against that nation State. Against this background, MAG strongly believes the costs of additional measures introduced since, including those that are as yet unspecified, should be met by nation States in their planning to counter the possibility of further terrorist acts.

  3.3  In the days and months since 11 September, MAG airports have seen significant fall in consumer confidence which affected passenger numbers—inbound as well as outbound.

  3.4  At Manchester Airport, in the weeks immediately following the events in the USA, passenger levels dipped sharply and even now continue to do so. The table below is an illustration of the impact on passenger levels at Manchester Airport following 11 September, and even though there has been a slight recovery from the sharp decline in passenger numbers since 11 September, passenger numbers are still below those for the last fiscal year (ie 1999-2000). Overall in September, the long-haul scheduled sector showed a decline of 15.2 per cent, with the domestic sector showing a reduction of 10 per cent in London traffic and 3.6 per cent decline on all other domestic routes. Whilst the Inclusive Tour Charter market is holding up, bookings for next year are very soft and down at between 30 per cent-40 per cent compared to last year.

Table 1

AirlineBA American AirlineUS Airways Continental
RouteNY-JFK ChicagoPhiladelphia NY-Newark
W/C 17 September 2001¸22.4 per cent ¸17.0 per cent¸11.1 per cent ¸25.7 per cent
W/C 24 September 2001¸44.5 per cent ¸29.0 per cent¸38.9 per cent ¸42.3 per cent

  3.5  MAG is committed to playing its full part to restore public confidence in aviation. The success of the "low cost" carriers in maintaining passenger volumes suggests that early recovery in domestic and short haul markets is attainable; although it is MAG's view that the down turn in transatlantic and other long haul traffic will be severe and prolonged.

  3.6  What can the industry, working together with the Government and others do, to support recovery? MAG would make a number of suggestions in response to this question.

  3.7  First the UK Government must press for a level playing field for airports and airlines across the Community. In particular, there needs to be alignment of the approach taken to support for security costs at airports (see below), insurance cover against the threat of terrorism or war, regulatory and competition policy.

  3.8  Secondly, a fresh approach is required to air service negotiations. It is imperative to end the uncertainty that bedevils the development of inter-airline partnerships. The events of 11 September have made stark the commercial imperatives for industry consolidation, and to move beyond the anachronistic "flag carrier" bias to the conduct of air service agreements. Protectionism must give way to the reality that airline economics are driven by the global market.

  3.9  Thirdly, the crisis confronting aviation threatens employment and economic well-being throughout the supply chain, including manufacturing industry, inward tourism and investment. MAG would expect the RDAs to play an important role in working with aviation interests to develop a strong regional agenda for action.

  3.10  Fourthly, MAG strongly supports the Commission's decision to prioritise the introduction of a Single European Sky. A coordinated approach to air traffic control within Europe is a key element and ensuring the conditions are met for future growth.

  3.11  Fifthly, we would hope that the UK Government will take a lead in discussions to harmonise security standards at airports outside Europe. At present transfer and transit traffic is being greatly impeded by UK Government's concerns about security standards at other airports. For example, there are currently four PIA flights flying via Manchester between Pakistan and the US weekly. Technically these are transit passengers and are counted as such by Government, yet these passengers are deplaned and subjected to the full rigour of security checks as though they were outbound passengers.


4.1  Security

  4.1.1  Further security measures introduced by the DTLR following the attacks were implemented at all MAG airports swiftly and effectively. This was a difficult and expensive process, the scale of which is not to be underestimated.

  4.1.2  The cost of implementing these and other measures since introduced by the DTLR were met entirely by all Airports within the Manchester Airport Group. Thus far, there has been no cost pass-through of any kind to airlines.

  4.1.3  Manchester Airport Group is of the view that government should meet these additional security costs and in this respect, MAG fully supports the position recently taken by the European Commission that the reinforcement of security measures should be borne by Member States. At the EU Transport Council meeting in Luxembourg on 16 October 2001, a majority of Member States, including the UK, took the position that airline operators and passengers should pay for the new security measures. It is MAG's view that this position ignores the reality that the threat to airports and airlines is a matter of national security. This decision is also diametrically opposed to that taken by the US government, which has reportedly released $3 billion to the American air transport sector to finance the cost of enhanced security.

  4.1.4  In a Parliamentary answer on 24 October, John Spellar, MP, maintained that the "question of meeting security charges is under consideration". MAG is of the opinion that an early resolution of this matter is vital and would urge the government to meet the additional costs of security measures implemented by airports, airlines and others affected in a specific and targeted manner. MAG does not support the position by government that costs of additional security measures should be channelled through airlines alone.

4.2  Insurance

  4.2.1  "We have introduced a new set of measure for third-party insurance for war and terrorism, in relation to the airline industry," said the Chancellor, Gordon Brown, on 22 September. "This is a 30 day cover for third-party war and terrorism, the premium for which we will waive for 30 days".

  4.2.2  MAG is grateful to Government for the arrangements set out below and for giving a lead to the rest of Europe by stepping in at a crucial time to "underwrite" the UK aviation industry. The scheme, which initially operated from 22 September, has been extended to 24 November 2001.

  4.2.3  There are two distinct strands to the current government scheme as follows:

    —  UK Airlines—Must purchase commercial cover of US $100 million with additional cover up to the level in place before 11 September 2001 provided by government at no additional cost to the airline;

    —  UK Airports—Must purchase commercial cover of US $50 million and purchase additional cover under the government-backed scheme up to the level in place before 11 September 2001.

  4.2.4  What is clear from these strands is that the waiver by government of premiums to airlines for third party war and terrorism cover over US $100 million is discriminatory. However, Government has not given an explanation for the reasons why airports and other service providers did not receive equivalent treatment.

  4.2.5  It is not clear what arrangements will apply for third party war and terrorism cover once the Government-backed scheme expires on 24 November. However, all the indications beyond that date are that additional premium costs will be required. Manchester Airport Group firmly believes that all parties in the air transport sector should be treated on the same basis by government.

  4.2.6  Finally, early indications are that other classes of airport insurance are likely to increase substantially. In the absence of government assistance, MAG, as with other UK Airports, have no option but to pass their costs to airline operators. In all likelihood operators would pass these costs on to passengers leading to higher cost of air travel in the foreseeable future.


  5.1  Since 11 September, trading has been difficult and the general consensus amongst industry analysts is this state of affairs will continue for some time yet. MAG firmly believes the USA terrorist events will continue to depress passenger travel (inbound/outbound) for some time, with recovery to pre-11 September levels not expected before Q1/2004.

  5.2  Manchester Airport is not immune from these hardships and the airport is experiencing critical, immediate and direct negative financial impact evidenced by the following:

    —  Severe decline in passenger figures (circa—30 per cent on average) on North America routes;

    —  A fall of circa 10 per cent on domestic London routes;

    —  A cut in airline schedules and frequencies by BA, Continental, bmi British Midland, KLM, Air Canada;

    —  Malaysian Airlines announced the withdrawal of its services from Manchester;

    —  The loss of some services including Air Canada, Egypt Air and others from Manchester;

    —  Deep reduction of inclusion Tour Operators bookings, which are down 30 per cent for Winter 2002 and 45 per cent for Summer 2002.

  5.3  Manchester Airport in common with other airports in the Group is a critical economic catalyst of regional economic well being. In particular, the reduction in passenger traffic has resulted in multiplier effects in non-primary sectors in the following industries:

    —  Hotels;

    —  Car Hire Companies;

    —  Restaurants and Caterers;

    —  Theatres;

    —  Amusement Parks.

  5.4  Until the cessation of current hostilities in Afghanistan and all retaliatory action has ceased, the outlook for the aviation sector will remain volatile and uncertain.


  6.1  The full national and regional economic impact of 11 September is still unfolding and is as yet unclear. However, there is little doubt it will be profound. From 11 September onwards, Manchester Airport Group and other UK Airports and Airlines responded with alacrity and purpose and played their full part in securing international and national gateways. By the same token, MAG calls on the government to intervene in a timely, targeted and impartial manner and assist the aviation industry through what is a very difficult phase in its history. MAG calls upon the government to offer tangible and practical assistance to UK airports in the following specific areas:

    —  Compensation for lost revenue to affected UK Airports for the 4 days during which USA airspace was closed;

    —  Assist UK Airports to achieve a level playing field with regard to the funding of security costs across EU Member States;

    —  Assist UK Airports to meet additional security costs incurred following the events of 11 September;

    —  Lend support to UK Airports to meet the additional costs for third-party insurance for war and terrorism;

    —  Work towards breaking the current impasse in the UK/US Open Skies or Air Service Agreements and provide pro-active support for the Single European Sky initiative;

    —  The crisis confronting aviation has unleashed a multiplier effect that threatens employment and economic well being throughout the supply chain, including manufacturing industry, inward tourism and investment. MAG would expect the RDA's to play an important role in working with aviation interests to develop a strong regional agenda for action.

19 November 2001

These costs include the costs borne by the charter airlines which are part of vertically integrated groups, as well as the costs to FTO member tour operators. Back

8   National Institute for Economic and Social Research. Back

9   UK Airports: Economic Impact, DTZ Pieda Consulting, September 1998. Back

10   100 Facts on London, London First Centre, October 1999. Back

11   Radio Taxis Limited and Dial-a-Cab represent over 4,000 licensed taxi drivers who work on two of London's largest radio circuits, providing `as soon as possible' and pre-booked journeys for the public, business and special needs communities. Back

12   BAA Traffic Summary: September 2001. Back

13   London City Airport October Passenger Figures 14.11.01. Back

14   BAA Traffic Summary: October 2001. Back

15   Fraport Frankfurt Airport Services Worldwide ANR 46/20001-12 November, 2001. Back

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