UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 765-ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

TRANSPORT Committee

AVIATION STRATEGY

MONDAY 3 dECEMBER 2012

COLIN MATTHEWS, STEWART WINGATE, GLYN JONES and nick barton

tim johnson, anthony rae, john stewart,

brian ross and peter barclay

Evidence heard in Public Questions 133 - 238

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Oral Evidence

Taken before the Transport Committee

on Monday 3 December 2012

Members present:

Mrs Louise Ellman (Chair)

Steve Baker

Julie Hilling

Kwasi Kwarteng

Karen Lumley

Lucy Powell

Iain Stewart

Graham Stringer

________________

Examination of Witnesses

Witnesses: Colin Matthews, Chief Executive Officer, Heathrow Airport, Stewart Wingate, Chief Executive Officer, Gatwick Airport, Glyn Jones, Managing Director, Luton Airport, and Nick Barton, Managing Director, Stansted Airport, gave evidence.

Chair: Good afternoon, gentlemen. Welcome to the Transport Select Committee. Could we please have your names and organisations, for our records?

Nick Barton: I am Nick Barton, managing director of Stansted Airport Ltd.

Colin Matthews: I am Colin Matthews, chief executive of Heathrow airport.

Stewart Wingate: I am Stewart Wingate, chief executive of Gatwick airport.

Glyn Jones: I am Glyn Jones, managing director of Luton airport.

Q133Chair: The Department for Transport has cut its forecast for aviation passengers in 2050 by about one third. Do we really need a step change in aviation?

Colin Matthews: We are short of hub capacity today. Heathrow has been short of capacity for some 10 years, so it is not a sudden thing that has come upon us. The reason why we are short of capacity at Heathrow is that Heathrow is the airport that can bring into one place demand from the south-east of this country, together with transfer traffic, to make viable those long-haul routes that connect this country to those parts of the world that are still growing. Whereas some years ago the economic situation in this country was not so severe, today we need trade, growth and jobs. Accordingly, we need those long-haul connections to those growing marketplaces, and we need them today. It is not a question about future passenger growth; it is about the need that exists today.

Q134Chair: Is it about a shortage of hub capacity, or capacity overall?

Colin Matthews: It is a shortage of hub capacity. There is spare capacity at Stansted and Birmingham, and I believe there is spare capacity at Gatwick. There is not a general shortage of runway capacity; there is a specific shortage of hub capacity.

Q135Chair: Mr Wingate, Stansted is nowhere near its full capacity; it is at about half, I think. Do we need more capacity in aviation?

Stewart Wingate: I am CEO for Gatwick airport. At Gatwick airport there is close to 9 million passengers-worth of spare capacity. If you look across London and the south-east, by no means is the system at crisis point or full. At Stansted there is significant spare capacity, and there is spare capacity at Luton too. In terms of connectivity at Stansted, we have been working very hard, following the change of ownership at Stansted, to reach out and start new long-haul connections, particularly to complement the already very strong European network. For us, there is a lot of capacity in the system. We need to challenge ourselves as to how we better utilise that capacity in the shorter term, but undoubtedly in the longer term there will be a need for additional runway capacity.

Q136Chair: Mr Barton, what about Stansted?

Nick Barton: The issue that you raise in your question is the cut in their forecast of growth. They still forecast growth. Looking at the long-term situation, they have reduced their growth forecast to 2.5% up to 2030 and 2.1% per annum from 2030 to 2050. If you extrapolate from that, even at 2.5%, you are looking at an unconstrained growth in the London system of nearly double what we currently have. So even though we have capacity at Stansted, a little at Gatwick and nothing at Heathrow, you need to take a long-term view here. None of us as chief executives or MDs of London airports can react quickly to something; it takes an awfully long time to put things into practice. There is a big issue about understanding what we are going to do for the future. We are not talking just about next year or two years, but decades into the future.

Q137Chair: Mr Jones, do you have any views on this?

Glyn Jones: I have two views. First, capacity is needed at peak. To say there is capacity available at Luton, for example, is true, but it is at times of the day that are significantly less appealing than others to airlines. Secondly, resilience is an issue. If we have a passenger experience agenda-most people do, and certainly the Government do-operating an airport at 95% capacity does not give you any resilience. If something goes wrong, it goes badly wrong. We submitted a planning application on Friday at Luton to increase the capacity of the airport to 18 million passengers to deal with two principal issues: first, to give more peak capacity, and, secondly, to make sure the passenger experience is what it needs to be.

Q138Iain Stewart: We often hear-you have repeated it today-that hub capacity is the key to future aviation growth, but in the written submission that Gatwick airport provided there was a suggestion that that is not a universal view, and the current trend is away from hub airports towards direct point-to-point services that will "continue and accelerate". Could you give some more particulars, and perhaps Heathrow could challenge it?

Stewart Wingate: If you look at the way in which London and the south-east operates today, of all the passenger journeys in that region 93% involve passengers who either originate in London or have London as their destination; they either start or finish their journeys in London. Of the passenger journeys, the number of those who transfer through London and the south-east is about 7%, so the vast majority of passengers are either starting or finishing their journeys in London. Of course, with about 12 million people within an hour’s drive of Gatwick, it is no surprise that we have very strong local demand. We have a significantly bigger population than the likes of Amsterdam or Frankfurt, for example. Our perspective is to look at the market in London and the south-east. That is today, and always will be, predominantly passengers who want either to set off from London or to come to London.

Colin Matthews: Gatwick does an excellent job for the point-to-point passengers it serves. The need for point-to-point connections is an important topic, which I think this Committee and the Davies Commission should look at. There is, however, a very specific type of travel for which that does not work so well: long haul. There are 75 long-haul connections served from Heathrow that cannot be served from other airports in the UK, because in order to serve them you need transfer traffic. Let’s take a route like London-Hyderabad or London-Seattle. The local demand in the south-east of this country is not enough to justify those routes. What is more, it is very variable-much more on a Sunday night than, say, in midweek. Therefore, airlines cannot sustain daily flights to those long-haul destinations without a hub that allows them to bring transfer traffic to one place, to even out the ups and downs of demand. We do have direct flights to Hyderabad, Seattle and 75 long-haul destinations that cannot be served from Gatwick. Even though Gatwick serves some long-haul destinations, as does Glasgow, the majority of long-haul destinations will not be served from this country unless we have a hub.

Q139Iain Stewart: Forgive me if I press a little further. The evidence we have had in written form suggests that, relatively, hub traffic will decline in importance and direct pointtopoint traffic will increase. Is that not the case?

Colin Matthews: I do not believe there is good evidence for that. I can offer the Committee a report we published recently that makes the case specifically for hub capacity. I do not want to suggest we are in competition, because pointtopoint airports have a very important role. If Gatwick needs another runway to serve that, fantastic; let it go ahead. The point is that that will not satisfy the need for hub capacity or provide direct connections from this country to south-east Asia, China and many other destinations that today are being better served from Paris, Amsterdam and Frankfurt than they are from London. That has economic consequences. Of course, it is significant for Heathrow, and you would expect me to argue that case, but it is also significant for the UK. It is important that this Committee and the Davies Commission are looking at it from the point of view of the UK economy. Don’t just take my word for it; ask the airlines what they think. I think they have already appeared before this Committee. Ask them how they make long-haul flights economically viable and what it requires. Our contention is that, if you squeeze business out of Heathrow, it will not pop up in Gatwick or Stansted; it pops up in Frankfurt, Amsterdam and Paris. Amsterdam, Paris and Frankfurt welcome that; it is very good news for their economies. I do not believe it is good news for the UK, and it is great that this Committee and the Davies Commission are investigating exactly those points.

Q140Iain Stewart: Of the transfer passengers at Heathrow, what percentage are coming in on flights from long-haul destinations, and what percentage are domestic transfers from Manchester, Glasgow or Edinburgh? What is the rough mix?

Colin Matthews: I can get an exact number to you immediately after this. Of the total, on average, about one third is transfer traffic, and within that probably about 10% or 15% is coming from the UK rather than other short-haul destinations across Europe. But it is not sufficient to talk simply of the average. On some flights the proportion would be as small as, say, 10% and on some flights perhaps as much as 80%. The point is that the arrangement is flexible and it allows the airlines to keep their aircraft full day after day. Without that, you do not have cost-effective-or carbon-effective-connections, if you fly aircraft half-empty. You need transfer traffic and a hub to make long-haul flights full and therefore economically viable.

Stewart Wingate: One thing Colin said lies at the core of the issue from a Gatwick perspective. Colin said that it is not really about us competing with one another. For us everything is about competition, and absolutely we want the opportunity to compete effectively not only with Stansted and Luton but with Heathrow as well. With the benefits of separate ownership, over the last three years at Gatwick we have gone an awfully long way to compete with Heathrow, putting in place facilities for A380s and new long-haul connections. One of the things we are working on now is the creation of transfer traffic feed for the more marginal long-haul routes, by looking at ways of connecting our very large low-cost short-haul European network to our long-haul connections. We project that, in the future, the lower-cost networks will start to feed the long-haul networks in airports such as Gatwick. Therefore, the future should be three competing airports of a similar size.

Q141Karen Lumley: Can I ask the managing directors of Stansted and Luton what better use they think can be made of their airports to try to increase capacity?

Nick Barton: We are blessed with fantastic infrastructure at Stansted. It was built to be a world-beating airport, and that is what we have today. The issue for Stansted is that it still has 50% of its capacity to be used, so our endeavours are to fill that capacity. That is a significant amount of capacity. About 17 million passengers per annum could be added to our current throughput, using the existing permissions and infrastructure already in place. To do that, we are focusing on driving up the connections into London, leveraging our "Stansted in 30" campaign to make Stansted a more attractive option for pointtopoint travellers coming into the London market.

Glyn Jones: We have just submitted a planning application to double the size of the airport. It is funded completely by the private sector. Assuming the grant of consent in the normal time frame, we would anticipate building it next year. Luton can make a capacity contribution of 8 million, which self-evidently does not change the world, but it does give time for the Airports Commission to answer the questions that have been set for it.

The second thing we need to do, working with Government, is deal with ground infrastructure. Rather like Stansted, we have excellent connectivity now, but we intend to increase the proportion of our passengers coming by public transport to 40%, so it has to become more excellent. For example, we have to make sure that the ITTs being let for the franchises on the train networks deal with airport passengers, allocating them the same importance as consumers. At the moment they probably do not do that. We also need to deal with bottlenecks in the other ground infrastructure system-for example, on the M1 at junction 10A, where, for the sake of £5 million or £6 million, a big project is being blocked.

Q142Karen Lumley: Do both of you see your airports as being mainly for low-cost airlines, or will you expand to other airlines?

Nick Barton: From the perspective of Stansted, we are very much focused on the European pointtopoint market.

Glyn Jones: We are exactly the same. The question about hubs is obviously critical. It is really outside my remit, but one thing I would say is that a hub is not an end in itself; it is a means to an end. As Colin has rightly said, it is about long-haul connectivity more than anything else. Where hubs really matter-not that we are in this game to any great extent-is in connecting emerging markets. In Luton, we have done a reasonable job of connecting ourselves to the central and eastern European emerging markets, but, frankly, we do not have the aspiration to go beyond that. To go beyond that you need a hub. I think I am right in saying that there is only one BRIC connection outside Heathrow in the whole of the UK.

Q143Chair: How do you see your future, Mr Jones?

Glyn Jones: All short to medium haul, or virtually all low-cost.

Q144Karen Lumley: To put a general question to all of you, do you think there are too many airports in our country?

Chair: You are all silent. We assume you all think your airports are okay. But in general, are there too many?

Colin Matthews: I believe there is one specific type of capacity of which we are short-hub capacity-and only Heathrow is in a position to satisfy that need. Other airports have spare capacity, as far as I am aware. Therefore, there is not a general shortage of capacity. There is capacity in Scotland, the midlands, the west and around London. We are short of capacity at Heathrow. The suggestion that somehow it is improving competition not to give passengers access to Heathrow seems to me wrong. By all means let’s have competition, and a second runway at Gatwick, if Gatwick wants a second one, but we need a third runway at Heathrow, or some other hub solution, wherever that is, in order to continue to connect UK business to those long-haul emerging markets.

Q145Chair: But Ms Lumley is asking if there are too many airports in the country. Are there too many airports?

Nick Barton: No; it is all about capacity. As for the UK generally, I cannot say.

Q146Chair: Do any of you think there are too many airports?

Colin Matthews: No.

Stewart Wingate: No.

Q147Karen Lumley: Can I ask how many airports in Britain make a profit, then?

Glyn Jones: I do not think I have that information.

Q148Graham Stringer: Do you think Davies will find any extra information that has not been available from all the inquiries we have had over the last 50 years or so? If so, what is it? Perhaps I am asking a difficult question and you do not know, but what areas, if any, are we likely to find new information about?

Colin Matthews: I think the Davies Commission could look in detail at the question of hubs. Does it make sense? Look at the arithmetic; look at the maths. Why is it that long-haul routes demand that? I think that is valid. Moreover, since 2003 a number of things have changed. The need for jobs and investment in trade is now even greater. Growth has moved from local developed economies to far-flung emerging ones. Since 2003, Paris, Frankfurt and Amsterdam have put on many more routes. They have put on 1,500 more flights a year from those hubs to cities in mainland China than we have from the UK, so the urgency, in particular, has changed.

Q149Graham Stringer: But that is really making the case for greater understanding within government about the economic importance of airports, isn’t it? It is not really saying that there is new information there. Perhaps you could give the Committee some of that information. What do you believe has been the loss to this country in terms of long-haul routes through lack of runway capacity at Heathrow?

Colin Matthews: I can tell you some of the airlines and countries that have come to me and said, "We want to fly to the UK, to Heathrow," and they have been surprised to discover that I have not got slots in my pocket to offer them. One example was China Southern-based, obviously, in southern China-which is huge; it is the third largest airline on the planet. It tried for eight years to obtain slots. Unfortunately, I am not able to give it slots, but it ultimately obtained some and has launched a direct flight from London to Guangzhou, which originally was four times a week and is just going to a daily flight. Other countries and airlines have come to us and asked for capacity, and they are amazed when I have to say to them, "I don’t have any slots to offer you."

Stewart Wingate: A number of those airlines have come to Gatwick and have had similar conversations with us about starting new routes. Over the last year we have been successful in setting up connections with Air China and Korean Air, and we have also set up the first direct connections between the UK and Ho Chi Minh City and Hanoi in Vietnam. We are reaching out to many of the other Asian carriers who want to set up direct connections to the UK.

Q150Graham Stringer: You now have a scheduled flight to Ho Chi Minh City, do you?

Stewart Wingate: Yes, and to Hanoi.

Colin Matthews: Unfortunately, that is a small proportion of the total people who want to fly here. BAR UK, an airline organisation, surveyed its members and the majority clearly said that, instead of coming to the UK, they would fly to other European places. If we squeeze business out of Heathrow, it pops up not in Gatwick and Stansted but in Paris and Amsterdam-to the benefit of Holland and France and the disbenefit of the UK.

Q151Graham Stringer: That leads me neatly to my next question. We have had ample evidence in this Committee about Newcastle, Manchester, Birmingham and a few other regional airports feeding Schiphol, Charles de Gaulle and other European hubs at Heathrow’s expense. Do you have any accurate figures for the UK’s losses as a result of that, and for the extra production of carbon dioxide, because passengers have to get on two different aeroplanes to get on to long-haul flights? It seems to me that one of the cases made for restricting capacity at Heathrow is based on the environment, yet more carbon dioxide seems to be produced by sending aeroplanes to the continent.

Colin Matthews: If you wanted the lowest emission solution, surely you would put your best connected hub as close as possible to the biggest concentration of demand, because that would lead to the shortest flights and the least doubling up of flights. From a carbon point of view, you would want to have your most efficient hub as close as possible to London, so the idea that we are reducing carbon by forcing flights that would otherwise go to London to fly from Paris is clearly not true. We have looked at that a little bit.

As for your economic case, we have published some work by Frontier Economics that puts a valuation on the UK’s lost trade, lost jobs and so on. I am not an economist, and I am sure you could get a whole range of views from different economists, but I am more than happy to pass this work to your Committee to add it to your considerations. Whatever economists you consult, they would clearly say that the UK is losing economic growth because we are forcing into France and Holland business that would come to the UK if it could.

Q152Graham Stringer: Do you have figures for the extra production of carbon dioxide from forcing that traffic into Holland, France and sometimes Denmark?

Colin Matthews: We have looked at an estimate-that is all it is-of the additional emissions generated by congestion and by the need for two flights instead of one.

Q153Graham Stringer: Would you send those figures to the Committee?

Colin Matthews: I will see whether it is in a format that we can send.

Stewart Wingate: When deciding where the additional capacity should go, the environmental impact really needs to be taken into account. If you look at some other measures of environmental impact, such as air quality, Heathrow regularly breaches those standards today, before a third runway is in place. If you look at the geographic location of Heathrow in relation to the city of London, clearly flights to and from Heathrow fly over the city, whereas if we create a competing airport environment by expanding Gatwick, the environmental impact directly associated with Gatwick, as it is in a more rural area to the south of the city, is significantly less. That would also build resilience into the airport system. For example, at times of disruption, having all the aviation traffic in one place and concentrating it in one hub can be quite damaging, as we found recently in snow events.

Q154Graham Stringer: There have been a number of attempts, not least in Glasgow and in this country, to use two airports instead of one, putting international flights in one and domestic flights in the other. Toronto has also done that. Do you believe that we could make a joint hub work in London?

Stewart Wingate: You could have competing airports. The idea of having a joint hub is not our vision at Gatwick. We see competing airports-first, Gatwick and Heathrow, and in time Stansted developing too, with a second runway. If you look around the world, a number of cities have tended to go down the hub route; they tend to have smaller populations. But a number of major world cities have gone down the route of having competing airports offering both long-haul and short-haul frequencies. The likes of New York, Washington, Chicago, São Paulo and Tokyo would all be examples of successful cities with competing airports.

Q155Chair: But Mr Stringer’s question is: would the joint hub work?

Colin Matthews: A good example is Tokyo. Tokyo had an airport called Haneda, which is close to the middle of Tokyo. It got full. About 30 years ago they said they would build Narita, which was subsequently opened, and they put domestic traffic into one and international traffic into the other. At the time Tokyo was the number one hub for Asia; it is now the seventh, because they handed their economic lunch to South Korea, and the leading Asian hub today is Incheon. That would not have happened if Tokyo had managed to keep a single hub.

I suggest you ask the airlines. Of course, Stewart will argue Gatwick’s case and I will argue Heathrow’s case, as reasonably and as well as I can, but it is the airlines who decide where to put their aircraft. It is not competition to say, "Well, don’t let Heathrow grow, because if it doesn’t perhaps we’ll be able to grab something in Gatwick." Competition would be having adequate capacity and allowing passengers to choose which to go for. Right now, airlines would choose Heathrow if they could. Unfortunately, many are forced out and choose other hubs instead.

Chair: We did put this question to the airlines, but we are seeking your views on it today, and I think you have given us your ideas.

Q156Kwasi Kwarteng: On the vision for competition that you outline, clearly competition is deeply affected by how many runways there are at each airport. Are you suggesting that we should compete on the current basis, with only one runway at Gatwick, one at Stansted and two at Heathrow, or do you suggest that we should have extra runways at Stansted and Gatwick to equal Heathrow? What vision are you suggesting would be the basis for the competition in terms of runway capacity?

Stewart Wingate: Clearly, the airport industry in the UK has gone through a great deal of change in the last three or four years following the break-up of BAA, under which the airports were in monopoly ownership. For us, competition is at the heart of a successful airport sector. The vision we are painting is to have a second runway at Gatwick, which we think is a deliverable solution when you take into account not only the economic but also the environmental impacts of airport expansion, and then, in due course, to have a second runway at Stansted, as well as competition from the likes of Luton, London City and Southend.

Q157Kwasi Kwarteng: To summarise, you are suggesting that both Stansted and Gatwick should expand and Heathrow should not, and that should be the basis of competition.

Stewart Wingate: Yes. If you look at the argument in the round, and the different dimensions which the Davies Commission will undoubtedly have to review-particularly the environmental aspects, the fact that Heathrow already violates its air quality measure today, and its geographic location to the west of the city, which means that flights will pass over the centre of London-that indicates to me the natural fact that by expanding Gatwick, and subsequently Stansted to the north of the city, you could end up with a very good airport system with similar sized airports actively competing for the traffic.

Q158Chair: Mr Matthews, if you had a third hub-a short hub-would that be enough, or would you be coming back for a fourth runway, if you did get a third one?

Colin Matthews: I am modest in my ability to predict what the demand for air traffic is going to be in 2040 or 2050. I do know that Heathrow is short of capacity today and that additional capacity would be valuable, not just to the industry but to the UK as a whole; but as for taking a view as to what capacity will be necessary in 2040 or 2050, that is a difficult thing to predict. We have done no work on developing a four-runway solution. I think Policy Exchange suggested it recently. We are taking a look at all the suggestions, including the Thames estuary, and suggestions that have been made today. We will look at that one, but we have not done any work on a four-runway solution so far.

Q159Chair: In the written evidence you have given us you say that you want to diagnose the problem, not give the solution. Is there any reason for that? In the past you have been very vocal in advocating more runway capacity at Heathrow.

Colin Matthews: There is a very clear reason. Any solution to the shortage of hub capacity in this country is going to be difficult. It will have difficult environmental considerations-noise-and difficult economic considerations. Unless policy makers decide whether it matters to the UK or not, we will not face up to those difficulties. If it matters only to an airport and an airline, why would UK aviation policy matter? If it does matter, we need to know how valuable it is, and then look at every single option-the Thames estuary option and any other options-side by side and objectively, and then, taking into consideration all the issues, including environmental ones, see which option stands up best. We are not arguing specifically for one solution today; we are arguing that all the options should be looked at objectively and seriously. We welcome this Committee’s work and the work of the Davies Commission.

Q160Kwasi Kwarteng: You say you would welcome an objective look at all the solutions, but we had a White Paper in 2003. What has changed since then? Someone-I think it was someone from the CBI-suggested that we had just gone back to square one.

Colin Matthews: This country has looked at this question and made decisions twice in the past, once about 30 years ago and once just a few years ago. On both occasions the decision was subsequently overturned. We know it is a difficult decision. I do not think there is any point racing to a decision if that means it will be undone again, so it deserves a really serious objective look. A solution needs broad cross-party agreement in order to have a chance of being delivered in the long term, so let’s take the time to look at it seriously and carefully. We welcome the work of this Committee and the Davies Commission to help to do that. If that takes a little time but the solution sticks, so much the better. But since 2003 the economy is worse, and the need for jobs is more urgent. Since 2003 economic growth has moved from Europe to longhaul destinations, and there are 1,500 more flights a year from Paris and Frankfurt to mainland China than there are from London, so relatively the UK is disadvantaged as we fight the economic competition between us and the neighbouring European economies.

Q161Graham Stringer: To go back to your previous answers, Mr Wingate, do I take it that, if there were a planning process for a third runway at Heathrow, Gatwick would oppose it?

Stewart Wingate: Yes. Gatwick’s vision is very different from a third runway at Heathrow. Our view is that, because of the environmental impacts of a third runway at Heathrow, that would not be the way to develop the expansion of airports in London and the south-east. Our vision is about trying to develop a competing airport sector that facilitates the journeys of those 93% of passengers whose journeys either start or finish in London, rather than what we believe to be the overstated case of the hub capacity arguments.

Q162Graham Stringer: Would you oppose Boris Island, if that came forward for planning permission?

Stewart Wingate: Our vision is one of competing airports in and around London and the south-east. We think it unlikely that Boris Island would come forward for planning permission, so we have not really considered that point.

Q163Chair: But you must have a view; don’t tell me you haven’t thought about it.

Stewart Wingate: From the information we have seen, the cost estimates of a Boris Island proposal would be between £50 billion and £80 billion. We just do not see it as being a deliverable solution.

Q164Graham Stringer: You agree with Andrew Adonis that Boris Island is a bonkers idea.

Stewart Wingate: We do not think it is a deliverable solution. We think that additional capacity is more likely to go to one of the three existing airports, probably Gatwick or Stansted.

Q165Graham Stringer: You have mentioned pollution a number of times, and everyone is concerned about that. The problem at Heathrow is primarily NOx emissions that often exceed the European limits. Can you think of another industry that would be potentially restricted or closed down because of contaminants and pollution from another area, because the pollution is mainly caused by road traffic, isn’t it?

Colin Matthews: Close to Heathrow some of the sensors indicate levels of air pollution higher than the European limit, but they are half the level that exists where we are now, here in central London. The air quality problems are principally associated with the older generation of diesel engines and the need to renew the fleet of diesel engines. Of course aviation plays its role, and we have to reduce the emissions from aviation just as we do from diesel. The problem around Heathrow is mostly generated by the M4, the M25 and so on, so the answer to that is more about European controls on diesel engines-Chapter 5, or whatever it is-than about anything else. Emission and pollution issues are serious, but let’s look at all the options side by side. Gatwick is making an average of two different things. If they were identical, and Heathrow and Gatwick were competing, you would expect the prices of slots to be equivalent, but slots at Heathrow have traded for up to £25 million. I do not believe that is the case in Gatwick. The value of a slot in other airports is zero, so Heathrow is not the same thing. We would welcome more capacity at Gatwick, if Gatwick chose to build more capacity, but that would not meet this country’s needs for long-haul connections that require a single hub. A split hub, or a dual hub, will not work.

Q166Lucy Powell: I have a question about the increase in capacity that might come from the proposed high-speed rail link. Mr Matthews, what evaluation have you made of that in terms of Heathrow? Would that free up some short-haul slots for you?

Colin Matthews: We would welcome High Speed 2. There are about 4.5 million passengers today who do not really have a choice. They will simply get on a short-haul flight from their local airport and go to Amsterdam. If you wake up in Leeds, you will get a taxi to Leeds Bradford, take a connection to Amsterdam and fly anywhere in the world from there. A high-speed train would give 4.5 million passengers the option-although not all would choose it, of course-of coming to Heathrow, so it would bring more passengers to that airport. We might indeed have one or two fewer slots devoted to domestic travel, but the demand for long haul would be even greater, because we could compete more effectively with Amsterdam, which is currently eating our lunch, as it were. Amsterdam has 18 destinations in the UK; Heathrow has only six. A high-speed network helping passengers to get to Heathrow comfortably, quickly and efficiently would make our business stronger and would be to the benefit of the UK.

Q167Lucy Powell: Do you see the High Speed 2 rail link as potentially part of a long-term solution or as an additional extra?

Colin Matthews: It increases the need for a third runway and more capacity, of course, because more passengers would come to Heathrow, but it will give better service to UK passengers and it is a good thing. We welcome it, but it is certainly not the solution to a shortage of hub capacity, because it will bring more, not fewer, passengers to Heathrow.

Q168Lucy Powell: There was some criticism from the airlines about the rail links to Gatwick and Stansted airports. Do you see the airports as having responsibility for maintaining those express rail links to the airports?

Stewart Wingate: We know that part of our success in attracting new airlines to the airport is based on the accessibility of Gatwick by rail. We have the highest percentage of total passenger volumes choosing to get to and from the airport by public transport, and by far the biggest proportion travel by rail. For the future we are looking at the Thameslink super franchise. We are very active in working with the franchise bidders, as well as the Department for Transport, because an essential part of a successful Gatwick is maintaining not only the Gatwick Express, which takes 30 minutes to get to central London and runs every 15 minutes, but also the services out to the City: London Bridge, Farringdon and Thameslink. While serving the demands of air passengers, the work we have done has also demonstrated that we can serve the demands of commuters from Brighton, as we are on the main line. The super franchise is very important to us, and going forward, one of the things that would unlock some of the potential of Gatwick is improved rolling stock on that service.

Q169Chair: Mr Barton, access to Stansted, especially rail access, is a big problem, isn’t it?

Nick Barton: It is not a problem; it is an opportunity. Already one in two of our passengers use public transport to get to the airport, which, for an airport of our size, is UK and Europe-beating.

Q170Chair: What would you like to happen in terms of access to Stansted?

Nick Barton: Initially, we would like to see reliability improve markedly-one in six trains suffer a delay on Stansted Express-and we want to see the journey time reduced. It is currently an extremely good service; it is once every 15 minutes, and there is a train on the platform at either end. We want to see Stansted brought closer to London by reducing journey times, and we have a proposal to try to achieve that. That will bring Stansted’s capacity on line for London more effectively, and we offer one of the best ways of getting into the City, which is the financial heart of London. If we have a world-class train link, which in terms of carriage quality we do, we just need to get a world-class speed and timetable.

Glyn Jones: One thing we can bring to the party is passengers. We have 3 million passengers a year who are not served by rail because the timetable is inadequate. We have one fast train an hour until 6 o’clock in the morning. The vast majority of our flights leave at 6 o’clock in the morning, so we need to have the passengers there earlier than that. Much as Stewart has said, we are very much involved with the bidders for the current First Capital Connect franchise, to make sure that timetabling work is done properly, because we are bringing significant potential revenue to it.

Q171Julie Hilling: I want to follow up in particular the question about High Speed 2. Trains go in both directions, so is there any solution to the problems of the south-east in the use of airports like Manchester and Birmingham? Could some of the flight congestion be solved by mini-hubs, or whatever, at places like Manchester, with flights going from other airports rather than all that concentration? As you rightly recognise, an awful lot of people have to travel to the south-east to get their flights rather than travel from the airport they would like to use, whether that is Manchester, as in my case, or other regional airports.

Colin Matthews: Some long-haul flights use Manchester or Glasgow, for instance, and I am sure those airports would welcome the best way for passengers to get there to fill them-but that will be only a small proportion. There is nothing to prevent airlines from making those connections today. There is capacity. I am sure all those airports are fighting to win that business, so it is not as if the business is being dragged away from them to Heathrow. They are out there making every single viable long-haul route work that they possibly can.

What is different about Heathrow is its ability to put transfers together. If your suggestion is that someone would arrive, say, on a flight at Heathrow and then get on a train and get their connecting flight out of Birmingham or another airport, unfortunately I do not think that is practical, because the time it would take between landing in one place and taking off from another would be hours, whereas the competitive standard is set in Amsterdam, say, where it would take an hour, or perhaps 45 minutes. Passengers will not take an option with a two or three-hour connection time if they have an option from Paris, Amsterdam or Frankfurt that takes 45 minutes or an hour. Unfortunately, I do not think a dual hub solution will work, and I do not think a split hub connected by a high-speed train will work. Even if the train went at the speed of light, the time between getting off one aeroplane and getting on the other would simply be too long to be competitive with our competitors, which are Amsterdam, Paris, Frankfurt and Madrid.

Q172Iain Stewart: I would like to follow on from the questions about surface access to airports. Each of you has his own perfectly laudable ideas about improving rail access to his airport. That has to be set against other uses for that rail line; our railways have a finite capacity. As for how this influences the future of airports, what comes first? Should we decide on the optimal airport solution and then think about how we get people there, or should we look at the surface access first, and let that influence the choice of airport? From a policy development perspective, which way round does it happen?

Colin Matthews: I think you will find that the question of surface access becomes a huge economic driver. For an airport in a new location, or one that is poorly served by rail connections, the cost of putting in those connections will be absolutely huge, whereas the case of an existing airport is different. I speak for Heathrow here, and it is on the main Great Western railway. Right now, if you go north from Heathrow, you turn right to come into Paddington. It is a great service. There is a terrific project, which I think will win, which means you will be able to turn left towards Bristol, Reading and Slough. That will improve rail access to Heathrow dramatically without a huge investment. For Heathrow, with its existing network of roads and rails, it will be much less expensive to make incremental improvements in good surface access than for a new runway, where every single motorway and railway line has to be put in from scratch, but let’s look at all of them and see how they compare side by side.

Nick Barton: The big issue here is that, currently, we have no aviation policy at all. If you are the rail industry laying out your plans, what do you pin them against in terms of serving the aviation industry? There is no question that every single airport represented here will contribute to the London market very strongly. We need the support of sufficient infrastructure, be it road or rail, to help those airports achieve their maximum potential, but it is crucial that we get a policy on foot that has a lifespan of more than five years, which the previous policy seemed to have before it became a political issue for the parties. We need to have a policy-for which, hopefully, this Committee will start the ground work; the Davies Commission will come in later. If we can get that policy, which will lay out how aviation in the south-east is going to be provided by all the airports here, and maybe others as well, you will give the people who lay the strategy for road and rail the chance to start to construct their schemes.

Q173Chair: Is there anything specific the Government can do to increase the use of Stansted airport?

Nick Barton: The rail links are the key for us. We do extremely well. We are an airport in the countryside-that was the original brand-but one in two of our passengers come up from London on public transport, and from elsewhere in the UK, through coach and rail. However, we need to make that better. We have 17 million to 18 million spare capacity per year already there: it is already built. It is a question of how we release that to serve the London market and the east of England.

Q174Iain Stewart: You have highlighted my concern. Are we looking at the whole transport system holistically enough? Do you think the terms of reference of the Davies inquiry are sufficiently widely drawn to allow all these factors to be properly assessed?

Nick Barton: The Davies Commission will look at these issues to see whether, holistically, the industry will be able to achieve its maximum potential for the south-east and the UK more generally. It will be drawn in, although I could not give you the detail as to whether its terms of reference are adequate to cover that. I would hope so, because it is very important that we see surface access as a key aspect of aviation.

Q175Chair: Mr Wingate, today and on previous occasions, Gatwick has put a very strong case about the problems of the franchise relating to Gatwick Express. Is there anything else you want to bring to our attention that the Government could do to assist?

Stewart Wingate: For Gatwick Express there will be big benefits from upgrading the carriages. We commissioned some work from Arup, a leading engineering consultancy, looking at the super franchise arrangements that lie ahead. That work lays out the fact that you can meet the needs of the commuter traveller as well as putting in place excellent timetables for air travellers coming into Gatwick and the UK, getting connections up to Victoria and also across into the City. From the perspective of surface access, protecting the non-stop nature of Gatwick Express and making it a premium service is very important to air travellers. For me, it is not so much a question of which one comes first-the rail strategy or airport strategy. The important learning from times gone by is that, when we look at the issue of airport capacity, we must make sure we have an integrated strategy that takes into account the rail and road accessibility of whichever airport gets additional capacity.

Q176Chair: Mr Jones, are there any other points you want to add?

Glyn Jones: I have a slightly different view. For me, the absolute basis of competition between airports is capacity. Therefore, accepting that surface access-road as well as rail-is absolutely critical, without sufficient capacity in the airports there is no substantial competition. We have to deal first with airport capacity, but at Luton we are missing out on opportunities on the scale of 3 million passengers a year, simply because the timetabling is wrong. As Stewart has just said, it is possible to deal with both the commuter piece and the airport piece; we cannot do one without the other.

Q177Iain Stewart: Mr Barton expressed a view. Do you have confidence that the Davies inquiry is going to include all these aspects adequately, or do you have a concern that it is looking only at the airport side of it without looking at surface access as well?

Stewart Wingate: From what I have seen so far, the Davies Commission seems to be listening to the industry-airports and airlines-as well as to other interested groups and parties, concerning airports. I think that the Davies Commission recognises that, as well as looking at the economic benefits that capacity can bring, it will also need to consider the environmental impacts and matters such as the resilience of airports going forward, and will therefore have a broad remit to include these areas.

Q178Karen Lumley: Mr Matthews, do you think Northolt has any role to play in increased capacity at Heathrow?

Colin Matthews: Northolt is quite close to Heathrow, but in every other respect I would give the same answer as I gave about providing a high-speed train connection to another place. Even if that train took no time at all platform to platform-which would be impossible-it would still take people an uncompetitively long time. It takes about 15 minutes to get everyone off an aeroplane. You then have to walk to the platform, which will take some time. You then have to wait. If you have a service every 15 minutes, you have to allow that much time, another 15 minutes at the other end, and 15 minutes to board. If you add up all those steps, that is just not competitive with the option that people can buy of transferring through other European hubs. I do not believe it will work. The Davies Commission is looking at every option, but we do not believe that a split hub, or a dual hub, will work. If you look at examples from other countries, as well as previous attempts in this country, involving a dual hub strategy, you will find they have not worked.

Q179Chair: What do you say about the proposal from Policy Exchange for four new runways to the west of the existing Heathrow site?

Colin Matthews: That was brand new to us. We will take a look at it, but I do not have a clear view for you today. I was surprised by it. I had not heard or thought of that suggestion before. We will take a look.

Q180Chair: How does air passenger duty affect you? Is it a problem? Would a variable rate cause any problems or be helpful?

Colin Matthews: Tax is discouraging air travel, and therefore it discourages tourists from coming to this country, for instance. Therefore, policy needs to weigh up where the best balance is. The suggestion that the way to give more passenger choice is to restrict access at Heathrow by having a higher tax there than elsewhere, or inadequate capacity at Heathrow, does not seem to me to be about competition. That does not make sense. So of course I would not favour having higher tax at Heathrow than somewhere else.

Q181Chair: Mr Wingate, do you have a view on air passenger duty?

Stewart Wingate: My views are similar to Colin’s. In terms of the strength and power of the market in London and the south-east, it is important that there is a level playing field and that the engine room of the economy is allowed to compete.

Chair: Mr Jones.

Glyn Jones: APD is an issue in itself, but it becomes more of an issue when it’s combined with all the other activities that cumulatively suppress demand in aviation. ETS is one of them and the constant regulation that drives up costs. At Luton we have seen a 12% compound increase in controllable costs just from regulation, so APD is just the tip of the iceberg; it is the iceberg underneath the water that will sink the ship eventually.

Q182Chair: I am asking you about APD, and I think you have given your answer. Mr Barton.

Nick Barton: It is a significant issue, particularly for us, where we focus primarily on Europe and the domestic market. Within domestic travel you have to pay at both ends, and in Europe we are not competing on a level playing field. It does not exist for many
European airports; they just do not have it. They introduced it in Holland and removed it; they found it cost four times more than it raised. It is a real issue that needs to be looked at. What is the impact on the industry, which is a growth industry that helps our exports? We are trying to achieve an export-led recovery, and we are hindering that by the unknown effects of APD, which in our view is well past its sell-by date and should be removed.

Chair: Thank you very much, gentlemen.

Examination of Witnesses

Witnesses: Tim Johnson, Director, Aviation Environment Federation, Anthony Rae, Friends of the Earth, John Stewart, Chair, HACAN, Brian Ross, Stop Stansted Expansion, and Peter Barclay, Vice-Chairman, Gatwick Area Conservation Campaign, gave evidence.

Chair: Good afternoon, gentlemen. Welcome to the Transport Select Committee. Could I have your names and organisations, please, starting with Mr Johnson?

Tim Johnson: I am Tim Johnson from Aviation Environment Federation.

Anthony Rae: I am Anthony Rae, aviation campaigner for Friends of the Earth.

John Stewart: I am John Stewart. I chair HACAN, which represents the residents under Heathrow flight paths.

Brian Ross: I am Brian Ross, economics adviser to Stop Stansted Expansion.

Peter Barclay: I am Peter Barclay, vice-chairman of Gatwick Area Conservation Campaign.

Q183Chair: There have been debates and discussions about aviation, and the alleged need for more capacity, for a long time. Do you think there is anything new going on at the moment that has led to increased attention being given to this issue?

Anthony Rae: I have listed five things, and I will go through them very quickly. First, the fact is that demand has flattened. It has now fallen away from its 2007 peak, and also some of the ambitions of regional airports have fallen away. The oil price has gone up, and possibly that is a permanent change in the market. The second thing is the failure of the 2003 framework, which is a significant event.

Q184Chair: If these are five points, do you think you could say them quickly, because we may well be coming back to these issues?

Anthony Rae: The second thing is the failure of the 2003 framework, which has been withdrawn. The third thing is the consequence of BAA ownership having broken up, and therefore you have seen disagreements on where the expansion should be. The fourth is the failure of the interaction, as we call it, between the emissions framework and the capacity framework, to provide a boundary restraint for capacity use or expansion. The fifth change is the remorseless increase in global climate change emissions.

Q185Chair: Does anyone want to add to what has been said or disagree with anything?

John Stewart: Just to add a couple of points. First, as the industry representatives said, the emerging markets of the BRIC countries are very different from what they were 15 years ago. The second point is to reinforce what Anthony Rae said about the fact that BAA has now been broken up, and there is commercial competition of a sort that we did not see 10 years ago.

Brian Ross: I want to make two points, both of which are in my evidence. First, we have more runway capacity than Germany, France, Spain or Italy; we even have more than Japan, although we do also have twice its population. Secondly, 10 years ago when the last Government were facing the challenge of putting together a new policy, they were looking at a demand forecast of almost 500 million passengers by 2030. Today the demand forecast on the table is not much more than 300 million passengers. The difference is 180 million or 190 million passengers. The last policy proposed four new runways. Logically, the correct policy response today, if demand has dropped that much, would be to say we do not need them.

Q186Chair: The drop in demand is the other point you make.

Brian Ross: Yes.

Tim Johnson: One very recent change is the context of trying to reconcile growth with climate change objectives. The EU’s decision to suspend part of the emissions trading scheme casts a doubt on our ability to reconcile those two things.

Q187Chair: Mr Barclay, do you want to add to that or disagree with anything?

Peter Barclay: Just to add that the change in ownership following the break-up of BAA results in private companies that have one consideration-the benefit to their shareholders, not necessarily the overall benefit of the UK. Gatwick Airport Ltd is owned by GIP, which is a faceless unknown organisation somewhere over there.

Q188Kwasi Kwarteng: I would be very interested to see what the view of the panel is. It seems to me there are two views. On the one hand, there are people who say we do not need any extra capacity; on the other hand, a large number of people-I suspect this is the majority view in the House of Commons-suggest that we do need extra capacity, but the debate is about where that capacity should be. As between those who do not foresee or want any extra capacity at all and those who might decide that we should have more capacity, I would be very interested to know where members of this panel sit.

Brian Ross: In my evidence it is acknowledged that Heathrow is very tight on capacity, even though it is said that Heathrow can handle 90 million passengers under the present arrangements. Heathrow is the only one that is tight. Our view, which I do not think is so very different from some of those expressed earlier by the industry, is that you can reallocate that demand. The Government have levers at their disposal-for example, air passenger duty.

Q189Kwasi Kwarteng: Forgive me, but to summarise, the short answer to my question is that you do not think we should have any extra capacity.

Brian Ross: I do not think there is a need at this stage.

John Stewart: My answer is that I do not know. I am very pleased that Sir Howard Davies is starting his inquiry by looking at future demand. That is the first building block. Only then will we know the answer to the question.

Anthony Rae: We are agnostic until Davies has looked again at the emissions ceiling set and established by the Climate Change Commission at 360 ppm. We think it is important that Davies does that work again to establish whether there is a possibility for additional capacity to be provided, should it need to be.

Q190Chair: Does anybody else want to comment on it?

Tim Johnson: I am happy to comment. The Department for Transport forecast gives you that answer. Out to 2030, capacity and demand match very well. The question then becomes: is it in the right place? Our analysis is that, region by region, it certainly is. That just brings you back to the Heathrow question.

Peter Barclay: And that is exactly our view as well.

Q191Kwasi Kwarteng: As far as you are concerned, in effect this is a nondebate, because we have enough capacity. I know you were agnostic on it, but, for those of you who feel we have enough capacity and we just need to reallocate routes, Boris Island, the third runway and all of that is really a non-debate; it should not be taking place. Am I right in thinking that?

Brian Ross: Indeed, that is my view. Architects and others can dream all the dreams they want about Boris Island, but ultimately, somebody has to invest in it and pay for it. Unless they are confident that there will be demand at the end of the day, that investment will not take place.

Q192Iain Stewart: There seems to be consensus in the aircraft industry that new generations of airliners will be significantly quieter and more fuel-efficient than existing fleets. If there were any requirement for future airport expansion to use only new generations of aircraft, would that change any of your perspectives or your cases against expansion?

John Stewart: I think you are right that planes will become cleaner and quieter. I understand from those in the industry that they are more confident that planes will become cleaner-in other words, more fuel-efficient. They are less confident of another significant step change in quieter aircraft. If we are talking about expansion, how clean and how quiet the planes are going to be has to be a key factor in any decision.

As for emissions, we heard earlier about the air pollution situation, particularly around Heathrow. If Heathrow were to be expanded-my views about that are well known-it could only be done on the basis of significantly cleaner planes. I do not think the quieter planes are going to be sufficient to allow for expansion, particularly at Heathrow, because the problem with noise these days at a big airport is not the noise from each individual aircraft but the sheer volume of aircraft coming over.

Tim Johnson: It is part of the equation. But as John has just said, the big question is: is it enough quickly enough? All the forecasts would suggest that, while those improvements would be welcome, they would not be timely. The rate of expansion would still increase, and you would still get a worsening of both noise and the climate effects, just relying on technology and operations alone. The question is the wrong way round. We have always approached it by saying, as we have said in our evidence, that if you start off with the environmental limits and challenge the industry to operate within them, you would see how much of the capacity you can utilise. I think the question is better expressed that way.

Anthony Rae: I agree with that. Of course, there will be more fuel-efficient aircraft, but, if the benefit of that is overwhelmed by the increase in demand, you will have an increase in the challenge to the environmental limits that Tim has just talked about. The DFT central forecast for emissions in 2050 is 210% above the Kyoto 1990 baseline, and that is a real concern.

Q193Chair: Does anybody else want to come in?

Peter Barclay: Basically, we agree with what has been said.

Q194Lucy Powell: We are all concerned about levels of pollution and carbon emissions. How do you feel about the argument that stacking and over-congestion at some of the big airports causes more pollution not less, and also the argument, which you may have heard if you were here when the airports gave evidence previously, that we are creating more flights with people travelling further to connect to hub airports? What is your response to those two points?

John Stewart: As for stacking, which relates particularly to Heathrow, it is clearly right that if planes are circling around in the stacks over London they are creating more pollution, but I think that is fairly minimal in comparison with the extra emissions we would have from a third runway, where planes would increase from 476,000, as they are today, to over 700,000 a year.

Q195Lucy Powell: Has any evidence been produced on that?

John Stewart: I can get evidence to the Committee.

Tim Johnson: There are other ways of dealing with these issues that are not related purely to capacity. If you had the Civil Aviation authority here, you would hear that the elimination of stacking is in their future airspace strategy. It is not necessarily dependent on capacity. There is a review of south-east airspace, and a lot of these issues can be accommodated in other ways.

Brian Ross: There was a public inquiry at Stansted-five years ago, I think-on expansion to 35 million. Ryanair gave evidence to it and said that, in the budget airline business, supply created demand. Ryanair went to Stansted because there was unused capacity and it was able to get a very attractive set of charges and contract, and on the back of that was then able to develop low-cost flights, so Ryanair is now 75% of Stansted. The phrase "excess supply can create demand" is worth bearing in mind.

Q196Lucy Powell: Can you say more about the secondary point I made about connection to other hubs further away and the environmental impact of that, which was raised earlier? Has anybody given any consideration to that?

Brian Ross: We should not get this out of proportion. The CAA figures show that about one third of Heathrow’s passengers are transfers. There is a dispute about that. The IATA figures suggest that the proportion is perhaps only half of that.

Q197Chair: Where are those figures?

Brian Ross: Gatwick airport might have them for you, if you ask them.

Q198Chair: Have these figures been published anywhere?

Brian Ross: I asked the same question earlier today of Gatwick airport. They referred me to some of the numbers which they put in the Evening Standard today.

Q199Chair: I am just querying your statement and trying to find out the basis of it.

Brian Ross: Let me try to find out and get them for you.

Q200Chair: But they are not published, as far as you know.

Brian Ross: I was told they were IATA figures, which means they are available.

Q201Chair: In your written evidence, a number of you have queried the alleged economic benefits of aviation. You have done it in different ways. Mr Johnson, in your evidence you talk about the economic disbenefits of aviation. Could you tell us what those are?

Tim Johnson: They are mainly environmental costs. There is a large body of literature and reviews that have looked at the different ways in which NGOs, community groups and the aviation industry present their statistics. One thing that comes across is that there are no right or wrong ways as such, but equally there is no standard methodology, and people set out to prove their own points. If you look at some of the available information that tries to recalculate some of the industry’s forecasts, factoring in the environmental costs and perhaps putting higher values on them-values that communities think are important-you get different answers. Perhaps the best example of that is the New Economics Foundation’s recalculation of the economic benefits of a third runway at Heathrow, which found it resulted in a net loss of £5 billion, because that study looked at different community values and environmental costs as well the traditional economic benefits.

Q202Chair: This was to do with environmental costs.

Tim Johnson: It was putting an economic price on the environmental costs.

Q203Kwasi Kwarteng: Is anyone suggesting that, if you take out the environmental considerations, which I know are very important, there are no economic benefits?

Peter Barclay: Reference has been made in previous history to the fact that since aviation began as a commercial operation it has never, on average, made a profit. In individual years it may make profits, but overall it has never made a profit. One of the things we have brought up in our submission is the fact that depreciation was not reflected when figures for economic output were produced.

Q204Kwasi Kwarteng: No one is suggesting, are they, that it was an economic disbenefit to invent aeroplanes? Obviously, on a commercial basis individual companies have gone bankrupt, but surely no one is suggesting that the whole idea of inventing aeroplanes was a mistake.

Peter Barclay: Nobody is, but it does reflect that sometimes the figures put forward are not necessarily as positive as they are spun to be.

Kwasi Kwarteng: That was an important point to make.

Q205Chair: How do you think airlines could be persuaded to use capacity outside Heathrow? Apart from the arguments about whether and how far, if at all, aviation will expand, clearly there is unused capacity in a number of airports. What could be done to make better use of that?

John Stewart: Possibly they will not be persuaded until a decision is made not to expand Heathrow. Once you have a decision not to build a third runway, the market comes into play. Market forces will then decide what are the most profitable planes to use Heathrow, which I think will be on the whole, though not exclusively, the long-distance intercontinental flights, with some short-haul flights to maintain the existing hub status. Market forces will mean that other airports will take some of the short-haul flights that are currently using Heathrow. If we are talking about persuading airports, it will happen only when there is a very definite decision about Heathrow.

Gatwick was making a slightly different point. I do not think Gatwick airport needs any persuading that it wants a lot of intercontinental traffic. There are two points here. As for persuading the airports to do something, we may not need that persuasion, because in the new world of competition, which I welcome, there is going to be an aggressive case made by airports like Gatwick that they should have some of the expansion.

Q206Chair: We have heard a lot of evidence on the importance of hub airports, of which Heathrow is one. I think you question that in your written evidence.

John Stewart: We have questioned whether it needs to be expanded as a hub. We would not deny that Heathrow has been beneficial as a hub and beneficial to the economy, but this brings in some of the evidence that Gatwick airport also put forward. London and Heathrow have more terminating passengers than any other airport and city in the world. It is those terminating passengers who make a sufficient number of flights to a sufficient number of destinations commercially viable and therefore attractive to business passengers. Airports like Schiphol, which do not have so many terminating passengers, rely on interchange passengers to make flights commercially viable. That is why we argue that at least Davies should be looking at the fact that, because of this considerable number of terminating passengers, Heathrow, while valuable as a hub, may not need to expand as a hub in order to make a lot of flights commercially viable, particularly those to the emerging economies of Asia, Africa and South America.

Anthony Rae: Looking beyond the south-east and to the north, where I am based, there is a certain market thread running through the approach of Friends of the Earth, which is that airports will be capable of supporting the route network that their catchment areas provide for. There is plenty of capacity up in the north. The airports sought to expand in the last decade, and now they have been forced to contract because there simply is not the market demand there. It will not be possible, obviously, to shift south-eastern demand to the north. There may be a dividing line in the midlands and around Birmingham, but up in the north the airports will simply have to get used to the reduced market demand that is currently being expressed.

Q207Chair: Does anyone want to comment on this?

Brian Ross: In direct answer to your question about what the Government can do to make better use of the capacity, there are two particular tools available to them. The first is the potential to look at differential rates of air passenger duty to shift demand away from the more congested airports. The second one, which goes back to the Civil Aviation Act 1982, is the traffic distribution rules, where it is open to the Government, under some strict principles, to move traffic from one airport to another.

Q208Graham Stringer: That is simply not accurate, is it? It is not.

Brian Ross: Under the traffic distribution rules in the 1982 Act?

Q209Graham Stringer: Yes. The open skies policy of Europe made it impossible for countries within the European Union to direct where airlines should fly.

Brian Ross: With respect, it still happens; already it happens.

Q210Graham Stringer: Can you give examples?

Brian Ross: Yes. British Airways operate their cargo flights from Stansted because under the traffic distribution rules that is what they must do. They complained to the Competition Commission that they were forced to do that. The Competition Commission asked the Government to review their traffic distribution rules two years ago.

Q211Graham Stringer: That does not apply to passenger planes, does it? There is no power to tell British Airways, or any other airline, that they should fly from Manchester and not Heathrow or Gatwick.

Brian Ross: You cannot do that. You cannot tell them to fly from Manchester rather than Heathrow or Gatwick, but my interpretation is that if you have two airports serving the same market you can do it. That is my interpretation.

Q212Chair: Have you got any other examples apart from the one that you gave?

Q213 Graham Stringer: I would be interested to see one single example within Europe of that happening because, as I understand it, it is against European law.

Brian Ross: Let me send you what the legislation says.

John Stewart: I go back to the second and short part of one of my earlier answers. I just forgot it. Another example of persuading airlines to use other airports-perhaps they do not need persuading-is what is happening with British Airways. Willie Walsh is appearing in front of you soon. He said at a conference on Friday that he is organising his business around the fact that there will not be a third runway at Heathrow. To do that, he is buying up more slots at Heathrow from BMI and so on, and possibly developing in Madrid. He is also opposed to mixed mode at Heathrow. Once other airlines work on the basis that there is not going to be expansion at Heathrow, they will develop a plan B, unless they are like Gatwick airport, with a plan A-plus, which right now wants to take some of the extra stuff from here. Thank you for giving me a second opportunity there.

Anthony Rae: Brian mentioned differential APD. I do not know whether you want to touch on that now or later, because I could give you a different view.

Chair: Please go ahead.

Anthony Rae: I give three reasons against it. First, it is a market distortion, as you heard in the previous sessions. Secondly, it is quite a pertinent issue because it is now recommended for the northern airports in IPPR North’s report on northern prosperity, which was launched on Friday. I asked them what the evidence was. Obviously, we just want to seek the evidence on whether there will be a benefit from this. They said it was based on the Northern Ireland example. Having looked at the PricewaterhouseCoopers report over the weekend, it seems to me that the reason it may or may not be justified in Northern Ireland is very particular to the cross-border potential for leakage and also their United States service. The third reason is that this is something of a race to the bottom, which in the case of Northern Ireland started with the reduction of long haul down to band A, and that has been completely abandoned. I understand that now the Northern Ireland Committee is recommending that all APD be scrapped. That seems to be going in exactly the wrong way. We should be seeking to recouple economic growth and emissions growth, because that is the justification for it, rather than decouple it, which is the longer-term objective that we think should be pursued. We would not be in favour of a differential APD.

Q214Graham Stringer: On Mr Stewart’s point, aren’t BA reorganising their business so that they are hubbing in Madrid rather than Manchester? Isn’t that their basis?

John Stewart: You mean rather than Heathrow. You said "Manchester".

Q215Graham Stringer: I apologise, but I meant Madrid. They are reorganising their business away from the United Kingdom and towards Madrid.

John Stewart: Yes. From what Willie Walsh was saying, it was two parts. One part is definitely reorganising some of the business towards Madrid. I think he finds the historical links that Madrid has had with South America particularly attractive. The other bit is buying up slots, such as BMI’s, so that he has more slots at Heathrow, which he says will eventually be used for long-haul flights, presumably to the emerging economies of China and India.

Q216Graham Stringer: But isn’t that the real hub of the argument that you are putting? You seem to believe that by constraining capacity in this country you can protect the environment, whereas most of the evidence we have heard is that you are not protecting the environment; you are just displacing the economic and aviation activity to elsewhere within Europe. That is an example of it.

John Stewart: As far as emissions are concerned, that can’t really be denied; I think that is right. At Heathrow, we would argue that there is a particular problem with noise, with 725,000 people being under the Heathrow flight path. 28% of all people across Europe are affected by aircraft noise. We would argue that that in itself should mean there should be no further expansion at Heathrow, but I do accept the point you are making.

Q217Graham Stringer: Is that accepted across the panel, because it is a very fundamental position if you accept that there is a displacement of the emissions and the environmental damage done by emissions to elsewhere in Europe?

Anthony Rae: Some of the emissions might leak out and therefore be displaced, but the question is how much. I am not sure I have seen any analysis that says whether there is a potential for a 3% or 5% leakage or a much larger figure. One would want to see the analysis before concluding that there is definitely a substantial quantity of displacement.

Q218Graham Stringer: But you have come to the conclusions on your policy before you have seen the evidence, if we are to believe what you are saying now.

Anthony Rae: No.

Q219Graham Stringer: If you are saying you do not know whether there is displacement but you want this constraint on capacity, have you not come to your conclusions prematurely?

Anthony Rae: No. You start from a position where you set the overall ceiling for emissions in the UK and work back from that. You then need to look at issues of displacement or leakage. We say that Davies ought to look at that, and it is a concern. I am pleased that Davies was able to confirm at the launch that they will be considering the emissions collar that some people argue could or should be placed around aviation capacity and will be able to test that argument that you are asking should be done. We would agree with you on that.

Q220Graham Stringer: Someone made the point that supply creates demand. Isn’t it really a question of supply enabling unmet demand to be satisfied?

Brian Ross: Since it was I who made the point, let me try to deal with it. I do not know what the unmet demand is for weekends in Estonia, but I get the impression that, having put on that type of route, the airline through marketing and pricing then tries to fill the seats on that aeroplane. As to how much of that is spontaneous demand and how much is induced, I would have thought it is mostly induced, frankly. I do not think people live their lives dreaming of flying for a weekend to-

Q221Kwasi Kwarteng: But the entire market system we have is based on demand. Advertising and all the rest of it is predicated on people’s desires, if you like, being stimulated by certain forms of marketing. You can’t really blame the company if it puts on supply and then successfully sells tickets.

Brian Ross: I simply say there is a hierarchy of needs and demands, and for some products you would need to drive demand far more than for others.

Anthony Rae: I would accept Mr Stringer’s phrase, but I would add at the end the clause "within environmental limits", which is the point that Mr Johnson made earlier. Those are just a few words, but they are enormously important in terms of climate change as well as local environmental impacts. There will be a certain amount of induced demand depending on the absence of demand management and the fiscal arrangements applying to this particular industry.

Q222Chair: Of all the proposals out there to deal with the assumed need for increased aviation capacity, do you have a least worst option? For example, would you regard the idea of a new airport in the Thames estuary as better or worse than any of the other options? Are all the options equally bad, or is there anything that you think is better or worse, Mr Johnson?

Tim Johnson: They are not equally bad, but they have different issues. We are trying to say to you that we should not even be asking that question. It is not our intent to constrain capacity. We are simply saying that, against the Government’s own forecast, the capacity to meet that out to 2030 already exists, and it is a question of maximising and making effective use of what we have before we look at new options.

Q223Kwasi Kwarteng: Passengers make choices about which airports they fly from. In your model, presumably the Government would reallocate passengers.

Tim Johnson: No. It is a very good question because you could imply that we are advocating that people use the spare capacity in far-flung places in order to make the equation fit. Under the previous airports policy, there was an attempt by Government to look at what a constrained demand scenario looked like. I do not mean "constrained" in terms of not building but just in terms of using the capacity we had. Where does that demand originate? Where does it want to fly from? That capacity equation still holds. If you look at it region by region, it even holds true for the south-east.

Q224Kwasi Kwarteng: You are suggesting that as we speak we have enough capacity, but are you saying that there are issues with distribution in terms of where passengers are flying from?

Tim Johnson: No. I am saying that, if you look at the origin of the demand, the capacity exists in each of the regions that people want to fly from, including the south-east.

Q225Kwasi Kwarteng: How do you diagnose the problem? Is there a problem? You are saying there isn’t a problem.

Tim Johnson: We are saying there isn’t a problem.

John Stewart: I would be very much opposed to the Government saying where passengers should fly from. That doesn’t work; it has to be left to market forces, but I would see market forces-possibly, this is the Government’s intention-operating within a wider framework. I think that the Government, in its aviation policy in March, is coming out with this wider framework, which will include overall environmental limits, be they noise, air pollution or climate change. My view is that Government are right to set this wider environmental framework and leave it up to market forces and the persuasion of individual airports to come up with plans, presumably based on passenger demand, as to where that increased capacity should be, if required.

Q226Chair: Does that mean you are broadly satisfied with the way in which the Government are approaching this?

John Stewart: I am broadly satisfied with the process that the Government have gone through. I think it has been the right process. I have said several times that I think they have been right to take their time to get the process right. We need the overall framework first and, within that overall framework, to look at the question of connectivity and the required capacity to meet it.

Q227Kwasi Kwarteng: Can I ask about this question of demand? It seems to me that you are looking at demand purely from the domestic market, not at people in China or wherever they might want to fly into Britain.

John Stewart: I would argue very much that we are-certainly in HACAN. That must be one of the key markets that Heathrow or London airports need to serve. My own view is that that is the most important market to be served because that is where demand will come from.

Q228Chair: You think that the current situation can deal with that.

John Stewart: No, I did not quite say that. I said I welcomed the fact that Davies was looking at what future demand will be. Future demand is very difficult.

Q229Kwasi Kwarteng: Can I get back to my question? With respect to your answer, my question was directed more to Mr Johnson and Mr Rae. Your position, as I understand it, is that our capacity is adequate to meet demand. I am suggesting to you that five years down the line you might be in a situation where a lot more people want to come to Britain, which is an increase in demand. I was wondering to what extent you have looked at increased demand by people coming into the country.

Tim Johnson: These are not our figures; they are the forecast of the Department for Transport. They take account of the foreign markets and likely demand as well, so they are factored in.

Q230Steve Baker: Mr Johnson, if airlines want to make a profit and there is already enough capacity to meet demand, I am puzzled about two things. I wonder how you would explain them. First, the airlines are asking for extra runways; secondly, they think they could be privately funded. Why would profit-making airlines in an environment where capacity can meet demand ask for those things?

Tim Johnson: Because we are talking about the overall position of the aviation sector and they are talking about their own company-specific position. You do not want to be forced to split your operating bases; for economies of scale you want to operate from one place. It is in their interests. I can understand an airline wanting more hub capacity to help serve its needs; that makes sense. I think we are approaching it more at the UK level.

Q231Steve Baker: So you are saying they should be forced to use capacity where it is, rather than operate in the way that best enables them to satisfy their customers.

Tim Johnson: You come at it from the point of view that says this capacity does not come free of charge, which is why we are back to the environmental constraint. If there was not an environmental issue, that would be a fair question, but, given that it imposes a cost and there is availability, it is better to make efficient use of what you have than build more and lock yourself in that for 20 or 30 years.

Q232Steve Baker: In relation to those costs, do you think our current land use and planning system adequately allows them to be expressed among communities? Do you think people are properly compensated, or is there a problem?

Tim Johnson: There is a problem, and in terms of trying to provide adequate compensation for those who live around airports we have not had a comprehensive approach in this country at any point in time. The closest we have ever come to it is the offering of partial or full cost towards the insulation of homes.

Q233Steve Baker: You mentioned the report of the New Economics Foundation and talked about community values being factored into economic analysis. Are those community values available to be bought and sold?

Tim Johnson: Not to be bought and sold without the community’s consent, but there is a body of evidence out there. The Government tried to test this in their reaction to aircraft noise and whether the community can put a value on it.

Q234Steve Baker: That is the key question, isn’t it? If something can’t be bought and sold, what confidence can we have in the value that is ascribed to it in economic analysis?

Tim Johnson: To turn that around, the total absence of it is also seen as a similar distortion.

Q235Steve Baker: I don’t want you to turn it around; I want you to answer the question. You have asserted that this particular economic analysis, factoring in community values, which presumably must have prices associated with them, undermines the case for aviation. I am asking you: if you are going to factor in community values with prices associated with them, what possible meaning can they have if those things are not available to be bought and sold, thus establishing a meaningful price for them?

Tim Johnson: I think there are economic ways of dealing with it, in the same way that you can do it for climate change and emissions. There is a whole body of literature. That is far easier to work out, and there are far more major elements of the cost as well. When we talk about the social and environmental cost, noise is an element of that, but, as to the local air quality and the health impacts of that, all of those can be calculated and monetised.

John Stewart: They can be costed in a way. We commissioned a report to look at the economic costs of night flights at Heathrow. We looked at the economic costs of sleep disturbance in terms of cost to the health service, lack of productivity at work, ill health and so on. In that sense, not in the bought-and-sold way, you can put a cost on the impact of noise.

Steve Baker: I do not wish to pursue this any further.

Brian Ross: I just want to comment briefly on why the airlines are asking for more capacity. I was interested to see that Mr O’Leary gave evidence to you two weeks ago and argued for new runways at Heathrow, Gatwick and Stansted. Of course he would, because the more capacity that is available the stronger is his bargaining position to drive airport charges down. He will get a better deal. I think you will find that airports are a bit more cagey about adding capacity as compared with airlines, because, ultimately, Governments do not build the runways and the airport operator has to be confident that he can make a return on his investment.

Finally on this, some years ago there was a proposal for a second runway at Stansted. The Department for Transport costed it at £4 billion, plus surface access; BAA thought they could do it for perhaps £3 billion; and Ryanair or Mr O’Leary said it could be done for £200 million. It is one thing to call for the extra runways, but, ultimately, someone has to pay for them.

Q236Steve Baker: Did you hear Mr O’Leary point out that he thought these runways could be built with private investment?

Brian Ross: Yes, because he believes it could be done for perhaps £200 million.

Q237Steve Baker: Surely, the issue is that private investors would invest their money in building an airport only if they felt they would get a return on their money, so Mr O’Leary would simply be disappointed, wouldn’t he?

Brian Ross: Indeed.

Q238Steve Baker: So what is the objection to putting on the table the opportunity for investors to bid for the opportunity to build new runways?

Brian Ross: Because you set a hare running and cause years of uncertainty and blight, and we have had quite enough of that.

Chair: I think you have made your point clear. Gentlemen, thank you very much for coming and answering all our questions.

Prepared 11th December 2012