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

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Transport Committee

Aviation Strategy

Monday 10 December 2012

Andrew Haines, Simon Hocquard and Richard Deakin

Robert Sinclair, Paul Kehoe and Andrew Harrison

Graeme Mason, Craig Richmond, Derek Provan and Darren Caplan

Evidence heard in Public Questions 290 - 423

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Oral Evidence

Taken before the Transport Committee

on Monday 10 December 2012

Members present:

Mrs Louise Ellman (Chair)

Steve Baker

Jim Dobbin

Julie Hilling

Kwasi Kwarteng

Karen Lumley

Karl McCartney

Lucy Powell

Iain Stewart

Graham Stringer

________________

Examination of Witnesses

Witnesses: Andrew Haines, Chief Executive, Civil Aviation Authority, Simon Hocquard, Operational Strategy & Deployment Director, National Air Traffic Services, and Richard Deakin, Chief Executive Officer, NATS, gave evidence.

Chair: Good afternoon, gentlemen, and welcome to the Transport Select Committee. Could we have your names and organisations?

Richard Deakin: I am Richard Deakin. I am the Chief Executive of National Air Traffic Services.

Simon Hocquard: I am Simon Hocquard. I am a Director of Operational Strategy & Deployment for NATS.

Andrew Haines: I am Andrew Haines. I am the Chief Executive of the Civil Aviation Authority.

Q290 Chair: Mr Haines, the CAA now has a strengthened role as a champion for the consumer. What do you think the key priorities for aviation policy should be, looking particularly at the consumer’s interest?

Andrew Haines: We believe there is a strong case for additional capacity in the interests of the consumer. We think that all three London airports are capacity-constrained at peak hours. The fact that there is space at 1 o’clock or 2 o’clock in the afternoon is of no use to those people who want to travel in the peak hours of the day. We think that in some cases that capacity constraint already leads to increased prices for consumers. On the DFT’s own forecasts, by 2030 and without additional capacity, that will cost about £1.2 billion to UK consumers. We think there is a strong case for capacity increase, particularly in the south-east.

We believe that, if the Government’s plan for connectivity is to increase and broaden the number of routes, that means that a hub airport is an important characteristic there, but we very much don’t believe that we should put all the eggs in the one basket of a hub airport. We believe that strong regional connectivity is important. Very often, that connectivity will be best dealt with by connectivity to international hubs and not just to a UK hub. So yes, there should be a hub and more capacity in the south-east, along with maintaining a strong connectivity from the regions.

Q291 Chair: Mr Deakin, you have said that airspace should be the centre of aviation policy. Can you tell us what you mean by that?

Richard Deakin: Certainly. It is very easy to forget that airspace is an invisible asset. Having airports that work efficiently very much depends on having airspace that works efficiently as well. From our point of view, we have a number of challenges at the moment, as demonstrated by the issue of Heathrow being pretty much at capacity, in terms of getting enough aircraft into UK airspace. We are very keen to have airspace very much at the centre of the debate. We need to have not just efficient airports but efficient airspace operations. The two are very much linked.

Q292 Chair: Do you think that in current planning policy they are linked sufficiently?

Richard Deakin: There is certainly recognition of the need to have efficient and safe airspace. One of the challenges for the debate that is currently going on around south-east airport capacity is to look at the issue as a network-as a system, if you like-rather than just option A versus option B. This is very much a three-dimensional problem that needs to be solved rather than a two-dimensional one.

Q293 Karen Lumley: I want to ask Mr Haines about regional airports. Do you think better surface access to those airports would increase their capacity?

Andrew Haines: It is certainly the case that airports tend to have a natural catchment area. That is largely driven by how quickly people can get to them. Typically, the limit that people will travel is 60 to 90 minutes, but in some cases it is up to two hours. In some places there seem to be almost impenetrable boundaries. You find very few passengers, for example, who will cross the Thames to go from south of the river to use Luton or Stansted. Generally speaking, surface access is key in terms of maintaining people’s connectivity. Indeed, we suspect it is one of the main reasons why Heathrow has such a strong pull over other London airports, because instant or speedy access into London is a key characteristic there.

Q294 Karen Lumley: How do you think HS2 will affect the regional airports?

Andrew Haines: It will certainly improve connectivity, but I think it is unlikely to be a game changer.

Q295 Graham Stringer: Mr Haines, on 13 December last year you were before the Committee, and at that time you gave us a commitment that your costs and burden to industry would reduce. That was echoed by the Minister in the same meeting, when she said the purpose of the new Bill was that costs would be considerably less and there would be less of a regulatory burden. Why then are you putting up your fees to non-designated airports by 18% this year after a 37% increase last year?

Andrew Haines: Because what we have uncovered is a considerable amount of cross-subsidy. Across the piece, there is an overall net reduction in CAA charges, but there is some redistribution because we have identified cross-subsidy. We do not believe the cross-subsidy is proportionate.

Q296 Graham Stringer: Who is the cross-subsidy between?

Andrew Haines: Different types of airports in that case. If you look at our overall charge income this year, it has been held and that means a real-terms price decrease, but there is some realignment because of cross-subsidy.

Q297 Graham Stringer: What you are doing is reducing costs in congested airports and putting up costs in uncongested airports. Have you consulted on this? Have you done an impact assessment on it, or is it just that you are changing your internal accounting system?

Andrew Haines: No; we are in the middle of a consultation at the moment. All our charges are subject to consultation. More to the point, we consult with something called the Finance Advisory Committee, and all the key stakeholders are represented on that. We will take feedback on board. We are talking about a tiny percentage of airport costs here, but the principle is to eliminate cross-subsidy from one part to the other. It is not related to the people who use the airport. It is not a congested airport or a non-congested airport: it is designated or undesignated.

Q298 Graham Stringer: It is a capacity charge, isn’t it?

Andrew Haines: Yes. That is the means for dividing up the sum. It is not calculated by passengers. That is the way that the cost is allocated.

Q299 Graham Stringer: When we were asking questions 12 months ago about costs to airports, why didn’t you tell us this when both you and the Minister were telling us that costs were going to come down? Why didn’t you say that for certain airports costs would go up?

Andrew Haines: You are talking about legislation that has not yet been enacted, so the legislation we are talking about in that context hasn’t yet got Royal Assent, never mind taken effect-

Q300 Graham Stringer: Let me interrupt. We were talking about the CAA, which itself was not audited by the National Audit Office. We were asking a number of questions about costs in terms of the increase in staffing, and we were assured, both by you and by the Minister, that there would be no increase in the regulatory burden and that costs to airports would go down. I am therefore surprised after a number of questions, both in the Select Committee and in the pre-hearings to the Bill Committee, that you decided you wouldn’t tell us that, because of your own internal accounting in the past, you were going to put these costs up to non-designated airports by more than 50%.

Andrew Haines: I remember the conversation at the time quite well. I seem to remember it was about two things. One was about the cost of aviation security and the net effect that would have in due course on our charges. Secondly, it was about whether or not we ought to be covered by the NAO. I made it clear on that point that it was entirely a matter for Parliament and not for us.

As I have just said, we have a net real-terms decrease in our costs. At that time we had not taken that level of detailed decision. Our charges are open for consultation. It is a tiny fraction of both our income and the costs to airports. We just did not have that level of detail in front of us at that time.

Q301 Chair: Are you saying that you weren’t planning to put up the charges that Mr Stringer is talking about at that time?

Andrew Haines: We had not considered that. I was asked a question about the general direction of our charges, which were going down, and I answered that question correctly and in all honesty. We hadn’t got to disaggregating that to those individual subsets at that stage.

Q302 Graham Stringer: Don’t you think it would have been reasonable to inform us that there was going to be a 50% increase? While you are answering that, can you tell us why you are budgeting for a £1.7 million profit?

Andrew Haines: Because we have to. Under statute, we have to make a 6% return on our activities.

Q303 Graham Stringer: In terms of the questions that we asked last time, has the number of staff that you are employing increased or decreased since last December?

Andrew Haines: At the moment our real numbers have decreased, but, more to the point, I said at the time that we were embarking on a modernisation programme that would see significant reductions over the next few years. We are still on task to deliver those. The commitment I gave was that, even though we would be inheriting staff from aviation security, there would be a net decrease and that is still our intention, but that was in the time scale of April 2014, when we inherit those people.

Q304 Steve Baker: How does economic regulation affect capacity? How could the regime be changed in order to improve it?

Andrew Haines: If economic regulation worked perfectly, then it would have a very negligible effect. The task that Parliament gives us is, as far as possible, to replicate a competitive market. In practice, what we are able to do is ensure that, where there is market power at an airport, we can oversee investment plans to establish whether or not the investment that is coming forward at those airports is being allocated in an effective way.

Q305 Steve Baker: Describe briefly how European Union and other international regulations constrain or indeed compel you to take particular actions?

Andrew Haines: Yes. It is quite a complex area, but, basically, since the 1990s, there has been a wide scale form of liberalisation across Europe, which has removed a lot of the tools that typically were in place before traffic distribution rules, which were in place in the 1980s, for example, and which said that certain destinations could not go into Heathrow and that new carriers could not go into Heathrow. They were gradually removed. For example, at one point Cathay Pacific were prohibited from going into Heathrow because they were a new carrier.

Following the UK lead, Europe has liberalised traffic within Europe. That has resulted in very significant restrictions. You cannot discriminate on the basis of either destination or nationality.

Q306 Steve Baker: But you would say the restriction is that you must take a liberal approach to the economic regulation?

Andrew Haines: It is very clear. What you can’t do, for example, is to say that bucket and spade holidays are not allowed into Heathrow, or that Germans have to fly from Stansted. It is that sort of permutation.

Q307 Steve Baker: Where are there market failures in aviation in the south-east in particular?

Andrew Haines: The key market failure in the south-east at the moment is down to a lack of capacity. We can see that currently at Heathrow, because that is where there is big demand, but we also see it at Gatwick and other areas in the peak hours, where we believe that passengers are paying more than they would otherwise pay if there was more capacity.

Q308 Steve Baker: Would you assign that lack of capacity to Government intervention or to the market?

Andrew Haines: The lack of capacity is a function of lack of planning consent for that capacity.

Q309 Steve Baker: So it is political.

Andrew Haines: It is a function of political policy at present, yes.

Q310 Lucy Powell: We have heard from the airlines in particular, as well as some of the airports that one way of increasing capacity into the south-east and particularly into Heathrow, at least in the short term, is by looking at whether aircraft can perhaps come in on a steeper approach and other measures like that where we can look at environmental issues but also increase capacity. What consideration have you given to that and how might such a thing be brought about? It sounds quite complex.

Chair: Mr Deakin, I think you have made some comments on this recently, haven’t you?

Richard Deakin: It is fair to say that NATS and the CAA are working very closely together on a range of options to try and improve capacity among existing airports. In terms of the steeper approaches, the report in the paper at the weekend was somewhat simplified in that we were not talking about a steeper approach straight in; you would have a shallower angle for the final run into the airport. That is one of the things that we are looking at. There is a range of options there. Obviously, we would also need to ensure that the safety case was up to the required level from a CAA point of view.

There is also a lot of things we are doing on the ground to improve efficiency at the airport. On the approaches, improvements in navigation technology mean that you do not have to fly in a long straight line and you can potentially come in on more curved routes and so on. It is fair to say that, in the capacity debate, this is not just about putting down more tarmac; it is about bringing together all of these solutions to minimise the environmental footprint from a CO2 and noise point of view.

Q311 Lucy Powell: What assessment have you done on what increase in capacity such measures could bring about if they were brought into effect in the shorter term-the next 10 years, say?

Richard Deakin: There is a very long list of options. It depends on which of those options you pick. Andrew has touched on some of the constraints at the moment around the planning side of things in terms of noise and volume of traffic. At the moment, Heathrow, for example, is capped at 480,000 movements a year. The starting point there would be to work out whether it was feasible to up the number of movements before we started to look at whether some of these technologies could increase that number of movements.

Q312 Chair: Is the steep approach already being used at London City airport?

Richard Deakin: Yes, it is.

Q313 Chair: Could it be used at Heathrow?

Richard Deakin: That is something we would want to look at in more detail. Obviously, there are different types of aircraft that fly into Heathrow-increasingly, for example, A380s. I don’t believe there are any A380s anywhere that fly those steep angles into airport thresholds. At London City they tend to be smaller aircraft-I think the biggest size there is Airbus A319s. We would need to do some modelling around the technical feasibility of that.

Q314 Chair: Is that something that you are looking at now?

Richard Deakin: We are having a top-level look at it. Clearly, we need to do more work on it ourselves and with the CAA, the airlines and the airport as well.

Q315 Steve Baker: When you say the A380 could not undertake a steep approach, what is the glide angle on a steep approach? Is it 6º?

Richard Deakin: At London City it is 5½º.

Q316 Steve Baker: By normal standards outside the aerospace world it is still relatively shallow, isn’t it?

Richard Deakin: Yes.

Q317 Steve Baker: If you compare that to take-off, at what angles are aircraft taking off?

Simon Hocquard: In terms of angles? A climb rating is measured in feet per minute.

Q318 Steve Baker: I know, but what sort of angle is that?

Simon Hocquard: It does vary. In terms of angles, I don’t have the exact information.

Q319 Steve Baker: The point I was driving at is this: isn’t it true that aircraft are capable of significantly greater climb and descent performance than they are asked to use in the course of these landings?

Simon Hocquard: Certainly, in terms of the climbs, yes, often they are. As you can see from some of the charts you have in terms of complexity within the south-east of the UK, because of that complexity, the climb profiles of most of the departures from the airports, particularly in the south-east, are constrained because of the interweaving in between all the different airports. As part of the Future Airspace Strategy and the London Airspace Management Plan, which is a whole redesign of the south-east, it is looking at trying to get departures a quicker rate of climbs and to cruise as fast as possible, which is a noise, CO2 and aircraft performance remedy.

Q320 Steve Baker: What about the steepness of the descents?

Simon Hocquard: The steepness of the descents is also an option to look at. Whether it is 5½º or 3½º or 4º will depend on what the optimum is for that airport and the aircraft that fly into that airport.

Andrew Haines: 3º is the standard across the world. I believe that was shortly after the first world war. The only exceptions that are made by ICAO internationally are where you need to do that for obstacle clearance. We think there is certainly merit in looking at this. One of the challenges is that the way it is dealt with-for example, at London City-is by having your landing gear down early, which creates more noise. The principal benefit of a steep approach would be to reduce noise, but the way that is managed elsewhere currently might have the impact of increasing noise. That is the thing we would need to resolve as well as the safety assurance that you can still do a stable approach, which is one of the significant risks in terms of runway excursions, which are one of the key causes of fatalities globally at the moment. It is definitely worth exploring. It goes against the grain of international convention thus far.

Q321 Julie Hilling: I am a bit confused. I thought that shallow glide reduced noise overall. If you are talking about a steeper path, won’t that hugely increase noise for the people closest to the airport? It might reduce it for people further out, but what about those people around the airport?

Andrew Haines: The reason we are particularly keen to explore what is called a two-stage approach, where your final approach would be no different than currently, is that you would avoid that issue. You would make it no worse for the people close by, but you would give a significant benefit to people in the outer reaches, if that could be made to work. Your final approach to the airport would be no steeper than it is currently.

Q322 Julie Hilling: But surely there must be a noise difference on the ground? If an aeroplane at the moment is coming in one way, then there would be variable noise somewhere else? Wherever it goes steeper, there has to be a noise differential somewhere.

Andrew Haines: There is only benefit because nobody would be flown any nearer than they are currently. What will happen is that further out in the approach it would be higher.

Simon Hocquard: Perhaps I can give an example-the distances are not real; this is just an example. At six miles out you are at 3°, so you are as you are today. At 12 miles out you will be at 5½º to that six-mile point, so at 12 miles out you are nearly twice as high as you are if you followed 3° out to that point. It is all a benefit for people outside. In towards the airport at six miles, 10 miles or whatever the mileage is, it would be no different from what it is today.

Q323 Julie Hilling: How does that improve any capacity? What is its relationship to capacity? Is it non-existent?

Simon Hocquard: It is not necessarily going to improve capacity. Another way of saying it is that it is all about whether it is feasible to do different glide paths. It is all about noise and improving the environment around the airports.

Q324 Chair: Are you saying it is more about noise and environmental issues than capacity as such?

Andrew Haines: It is all about that.

Q325 Chair: It is not about capacity.

Andrew Haines: It is not about capacity.

Q326 Julie Hilling: When we went to visit Heathrow some time ago, there were discussions saying, "We could increase the capacity at Heathrow if we had a different pattern using the same runways in and out, which would increase the numbers." Is that something that is being thought about? Is that around capacity up in the air, or is that just about noise on the ground? Are all these pilots anything to do with that actually increasing the number of aeroplanes landing and taking off during any period?

Simon Hocquard: There are all sorts of different subjects in that particular question. I think you are referring to what is commonly called mixed mode at Heathrow, where both runways are being used simultaneously for both departures and arrivals. There have been lots of debates around the mixed mode at Heathrow. In addition to that, we have the Operational Freedoms trials that are currently operating. We are looking at tactical measures to be able to mitigate any disruptions at Heathrow, bearing in mind that Heathrow is at 98% capacity at all times, so any disruption has an immediate impact.

Q327 Chair: Could you tell us if the Operational Freedoms trials have been successful?

Simon Hocquard: They are being successful, yes. They are due to conclude at the end of March next year. But it is not necessarily about capacity; it is about resilience, although it often talks about capacity. If capacity is generated and filled with movements or aircraft, then you are still in the same situation as you are today. It is important that, if capacity is created, we look at resilience, particularly at Heathrow which is at full capacity, rather than adding more aircraft to it.

Q328 Karl McCartney: I want to examine the environmental benefits of a steeper approach or different glide path. That is probably a misnomer as large aircraft don’t really glide. How much fuel is going to be used if you take a steeper or shallower glide path? I am trying to examine the environmental issues for people around the airports. Are they going to be using more fuel if they do that?

Simon Hocquard: I don’t know the exact numbers but we can get those to you. We have some data on climb-outs as well as arrivals. We can make sure that they get sent to you. There are benefits. We measure what we currently do in terms of continuous descent approaches. That is something we are measured on every day. It is about descending at the same rate and not levelling off and therefore putting power on, which is when the noise and additional fuel burn comes on, for example. We do have those numbers.

Q329 Chair: Mr Hocquard, you said that the Operational Freedoms trials had been successful. Does this mean less delay or more capacity, or both? Have you reached any conclusion on that?

Richard Deakin: Perhaps I can comment on that. In terms of the Operational Freedoms trials, it is important to underline that the trials were really focused on resilience rather than additional capacity. At the moment, Heathrow operates at anywhere between 98% and 100% capacity during the day. The trials have focused very much on the need to give us some breathing space around recovering any delays. For example, this morning we had an aircraft that landed with a suspected fire on the brakes, so various aircraft had to go around. Typically, that means they have to go back into the stack and approach the airport again. The challenge with resilience is trying to give the airport an ability to recover from that disruption. That is very much what the trials have been focused on.

In terms of capacity-potentially using mixed mode and various other techniques, such as changing the departure angle when the aircraft depart-we could potentially increase capacity, if you want to measure it in those terms, by about 15%, but the preference is to use that additional capacity for greater resilience rather than just for increased numbers of flights.

Q330 Chair: Would you see any merit in capping capacity at, say, 75% to improve resilience?

Richard Deakin: That would be a decision for the Davies Commission to look at. At the moment, the airports use pretty much up to 100%.

Q331 Chair: I am asking you if you think it would be a good idea.

Richard Deakin: Mathematically, it would increase resilience, but it would also take out a lot of capacity from Heathrow. At the moment Heathrow is the world’s busiest two-runway airport. We do as many arrivals and departures out of Heathrow as John F Kennedy does out of four runways or Dallas Fort Worth does out of seven. We have some challenges there in terms of demand.

Q332 Graham Stringer: What are the airspace implications of Boris Island?

Simon Hocquard: The easiest way is to refer to the picture.

Q333 Chair: We can’t record pictures, so you will have to say it.

Simon Hocquard: The south-east of the UK is very complex.

Q334 Graham Stringer: Try and make it simple. Would Heathrow have to close? Would there be more or less people affected by noise?

Simon Hocquard: In terms of a purely operational and technical viewpoint, with a complex interaction of routes within the south-east of the UK, by placing a four-runway airport in the Estuary with the current airport’s infrastructure that was there, something would have to give.

Q335 Chair: What does that mean? Does that mean Heathrow would close?

Simon Hocquard: Something would have to give. If everything operated the same as it does now, then, effectively, the Estuary airport would not be as effective as it could be. Again, it is very difficult to explain without pointing to the map.

Q336 Chair: But you said, "Something would have to give". Can you answer Mr Stringer’s question?

Simon Hocquard: With a four-runway airport in the current south-east where we have a complex infrastructure with lots of other runways, could all those runways operate effectively together as super-efficient airports in their own right? I don’t believe so. Technically, it is very difficult to interweave the two.

Q337 Chair: Is the answer no?

Simon Hocquard: Technically, from an operational and technical view-

Q338 Chair: Just give me an answer. I am asking you for your opinion. Where do you stand on this?

Simon Hocquard: My opinion is that they would not operate effectively all together.

Q339 Graham Stringer: Can you put some numbers on it? How many flights would you have to take out of Stansted, Heathrow and Gatwick to operate Boris Island with four runways?

Simon Hocquard: We have not done the modelling for that so I can’t give you an answer to that question.

Q340 Graham Stringer: How many more people would be affected by noise-you can give us the answer in CROMEs, if you like-if Boris Island was built?

Simon Hocquard: Again, because of the modelling, I can’t give you an answer to that. I can say that, bearing in mind that the prevailing winds within the UK are from the west, so the runways would be east-west because aircraft have to depart and land into wind, all aircraft departing from the Estuary airport, for 70% of the time because of the prevailing wind, would be flying at low level, heavy and fully loaded over the centre of London. In terms of all departures, for 70% of the time, all departures would be flying over densely populated areas.

Q341 Graham Stringer: You seem reluctant to put any numbers on it, but you may well be bringing a lot more people within any particular decibel range than are currently affected by Heathrow, Gatwick and Stansted.

Simon Hocquard: Potentially, but we haven’t done the modelling so I can’t give you a definitive answer.

Q342 Graham Stringer: But you would be taking 70% of what might be-I don’t know. How many flights are there out of Heathrow? How many movements are there?

Simon Hocquard: About 1,350 a day.

Q343 Graham Stringer: You would expect more from Boris Island; 70% of those would be going over central London.

Simon Hocquard: Probably, yes, or potentially.

Q344 Chair: You seem very reluctant to give us straight answers to this.

Simon Hocquard: Operationally, it becomes a balance. If you have four runways in the Estuary and they all depart going to the west and they all go straight out, which would be the most cost-effective for the airlines to do in terms of fuel burn, they would go over the centre of London. If you decided that it was best to route them around London, then that would be more CO2, more fuel burn and far more expensive for the airlines. They might go over fewer people but it would be far more expensive to fly and be environmentally less effective. I could give you all sorts of different scenarios, but without doing the modelling and the design of the airspace I cannot give you a definitive one.

Q345 Chair: Will you be doing modelling on this?

Simon Hocquard: We have not been asked to.

Q346 Graham Stringer: Andrew Adonis, when he was Secretary of State for Transport, said that Boris Island was "bonkers". Do you agree with him?

Simon Hocquard: He has an opinion.

Q347 Graham Stringer: It is an opinion. It was partly because of the air capacity, partly because of routes, and partly because of birds and cost. Do you agree with him that it is bonkers?

Simon Hocquard: The south-east is very complex. Wherever you put a new airport in the south-east of England, it will have an impact operationally of one description or another.

Q348 Chair: Do you think it might be bonkers?

Simon Hocquard: It might be brilliant or it might be bonkers. We will design airspace in answer to whether it is a new airport, additional runway or whatever it needs to be. We can do that. What I am saying is that this is a very complex piece of airspace. To put a new four-runway airport anywhere in there will be very difficult.

Q349 Steve Baker: Thank you for these charts. What you have given us is the standard instrument departures; a partial schematic of the flows of aircraft to and fro; a density heat map of departures; and also the trajectory of flights flying 25,000 feet and below all on one day. I have to say it is an enormously complicated set of arrivals and departures. I can see that.

We have been given broadly three solutions: a third runway at Heathrow, Boris Island and perhaps what we might call the O’Leary triple of three new runways at three airports around London. Which of those three solutions gives you the least headaches in terms of airspace?

Richard Deakin: Coming back to my colleague’s point, it is fair to say that we have not done any modelling of those options. We have not been presented with the details of what has been planned. We are happy to have a look at that if we are asked.

Our starting point from an air traffic management perspective is that our aim is to deliver an efficient and safe air traffic service as cost-effectively as possible. The starting point in terms of answering your question is to look at the existing capacity because we are working on the basis that you are better off using existing capacity-I am talking about airspace capacity here-than building new motorways in the sky.

If I can use an analogy, it is more cost-effective to add another lane on to a motorway in the sky than it would be to redesign the road network to accommodate, for example, an Estuary airport.

Q350 Steve Baker: With that in mind, it seems to me, as a matter of common sense, that it is probably easier to add runways to existing airports and have an incremental increase in capacity at each of those airports than it is to build a new four-runway airport somewhere else.

Richard Deakin: Yes; that is a view I would share.

Steve Baker: We all accept that you have not done the modelling, but thank you.

Q351 Chair: From an air traffic control perspective, would you say there are too many airports in the south-east?

Richard Deakin: No, I don’t think so. London is particularly well served by a network of airports in what is called the London terminal manoeuvring area. We do have a challenge around Heathrow, where we don’t have sufficient capacity to meet demand, but I would not say there are too many in the south-east. Certainly, during the Olympic period, for example, all of those airports were utilised very intensely. London is quite well served by a range of airports for different airlines and customer requirements.

Q352 Chair: When will the Future Airspace Strategy be completed and put forward?

Andrew Haines: We have published a road map on that. The key now is to get industry involved in implementation, because it requires infrastructure at airports, it requires aeroplanes to be properly fitted and it requires new procedures. We are urging that that happens as soon as possible through industry implementation, but it is not something that central Government or regulators can direct. We have laid out a road map that can achieve it; we are encouraging people to participate and we are getting good industry co-operation on that.

Q353 Chair: How important is the Single European Sky initiative?

Richard Deakin: From an air traffic perspective it is hugely important. It is important to recognise that the UK is very much a network. The efficiency of the UK network is very much determined by the efficiency of the network around us. Well over half of the air traffic delays we experience in the UK originate from outside the UK. From that point of view it is important that we play an active role-as we are doing-in joining the European airspace together.

We have a lot of technology improvements that are going to address some of the questions that your colleagues have asked this afternoon. I would like to think it will also have some positive impact on what we might be able to deliver in terms of a capacity solution in the south-east. Coming back to my opening remarks, as I say this is very much a network challenge and we are playing a very active role in that.

Q354 Julie Hilling: When we have talked about capacity before-this is my feeling and I don’t know if other Members feel the same-it was about being able to land and take off and getting to people to an airport, rather than "that space up there". Is there an issue about that space up there? Do we already have a traffic jam in the skies? Can we increase? If we put another new runway anywhere, do we have the sky capacity to take it, or is it actually full up already?

Simon Hocquard: Do we have capacity at the moment? Yes, we do, in the sky. If we look towards the future, the operational capability in terms of the whole industry is getting to the point where we are being restricted by the structures that support that, whether it is the invisible airspace structure or the ground structure. The same principles have been used for decades and we are now moving into being able to optimise with new technology, processes and procedures.

However, to change airspace is a very long and complex process. It requires consultation with everybody affected on the ground, particularly near the ground and around airports. If I give you an example of the Future Airspace Strategy, a big part of that is the LAMP-the London Airspace Management Programme-which is redesigning the airspace. That affects 300 constituencies within the south-east. We are required as part of the regulation to consult with every constituency within that area, for example, to do that airspace change.

Is there capacity? Yes. Is there capacity to change and will we need to change? Yes. But the complexity, longevity and cost of doing that change are quite high and involve significant consultation.

Q355 Julie Hilling: Does it matter where that additional runway would be put? Is it the same if you put another runway at Luton or Stansted, or is it a particular difficulty if we are talking about expansion of Heathrow?

Simon Hocquard: It is complex now. When the decision is made about where to put the runway, I feel wholly confident we can model, design and create whatever airspace is needed to be able to service those new runways, wherever they may be. The airspace would be designed around that. The simple answer is that, yes, we can do that and we would.

Q356 Julie Hilling: Do the same complications exist around regional airports further away? Is it exactly the same issue?

Simon Hocquard: In terms of the airspace change process, yes, it is exactly the same throughout the UK.

Q357 Chair: Mr Haines, should the CAA be empowered to guarantee regional access to the UK hub airport?

Andrew Haines: I can understand why people suggest it, but there are two problems with it. First of all, it is subject to the same restrictions that I referred to with Mr Baker. There are very clear limitations within European legislation on how you can use public service obligations and so on.

The second one is the law of unintended consequences. If the Government’s policy is to increase global connectivity, then restricting how scarce capacity is used at a particular airport could well have unintended consequences. It is very difficult to achieve and probably not desirable, although I entirely understand why people argue for it.

Q358 Chair: It is not something you want to see.

Andrew Haines: No, it is not. We think it would be the wrong thing to intervene in the market in that way. We also believe that the key for regional consumers to be well served is to continue to develop the links to hubs, because regional consumers in the UK are very well served through their connectivity to mainland European hubs as well as Heathrow.

Q359 Graham Stringer: Following on from that question but not about public service obligations, within the current rules on European open skies and all the other rules on aviation, can you think if there is any way that the large runway capacity we have in the country could be better used? Are there any policies that the CAA or the Government could pursue that could bring that capacity into use, to the benefit of the congested south-east-and the regions, for that matter?

Andrew Haines: The real challenge is the fact that demand is peaking. It peaks geographically in the south-east but also by time of day. Even at Stansted, which has seen a massive reduction in usage in the last five years, it is still pretty crowded at the peak. It has not seen fewer planes in that 7 to 9 am peak. Intervening in the market to shift people away from those peak hours, despite very attractive pricing, hasn’t worked. Political intervention to try and shift would almost certainly be unsuccessful.

Q360 Graham Stringer: So you can’t think of any way of using the extra capacity?

Andrew Haines: Not that you would not end up regretting. There has been lots of evidence across the world where people have tried to do that by building alternative airports, but, in practice, almost every single one of them has failed.

Q361 Graham Stringer: At our last session we had a very entertaining exchange between Heathrow and Gatwick, who, as you know, used to be part of the same company. The case being made by Gatwick was that, given enough freedom and competition, they would provide all the capacity that was needed with a new runway after 2019. Do you think there is a possible solution to this problem by complete deregulation of the airports in the south-east?

Andrew Haines: I don’t see what that would achieve. First of all, we are very keen to promote competition, but we have not in any way stifled any investment at Gatwick or Heathrow. It is not at all clear to me that, if you were to deregulate, you would do more than just remove the restriction on people taking excess profit. We regulate Heathrow and Gatwick because, currently, they are believed to have market power, and that means they are not then able to charge what they think the market will bear. It would be useful for people who make that connection to give practical examples, but we don’t believe that would materialise.

Q362 Karen Lumley: I would like to follow that up. You don’t think that if we deregulated the market for the whole of the UK-not just the south-east but all our airports-that would not mean we would get more regional flights and better competition?

Andrew Haines: They are all deregulated currently apart from Heathrow, Gatwick and Stansted. We don’t intervene at all. We stepped away from Manchester several years ago in that respect. The only economic regulation-

Q363 Karen Lumley: All the airports can get flights from anywhere in the world they want to go?

Andrew Haines: That is about bilateral agreements. There are certainly some restrictions because of bilateral agreements, but they almost inevitably take two to tango.

Q364 Chair: How serious are those restrictions from the air licensing agreement?

Andrew Haines: It is very difficult to measure because it requires both parties to want to negotiate. It requires the Chinese Government to want to liberalise as well; it requires the Russian Government to want to liberalise as well. Simply opening up one end of that equation seems to me to be unlikely to be successful of itself. That is why it is a very difficult argument to be definitive about, because it depends upon their appetite. For example, the Chinese have said that, if there was more capacity at Heathrow, they might be prepared to liberalise, but they are not prepared to open up more capacity for Gatwick. We don’t know if that’s true or if it is just a negotiating position.

Q365 Chair: But, from where you are, Mr Haines, and from what you do know, how serious an impediment is this to flights from regional airports?

Andrew Haines: I suspect it is not a massive impediment but I could not be definitive about that because it is very hard to judge.

Q366 Karen Lumley: I want to come back on that. Surely, we all know that we are not going to get a third runway at Heathrow before the next general election; that is the reality. Surely, our Government-or a Government-should be looking to try and get these bilateral agreements sorted out? There is capacity and we are losing out in our economy. We are looking to rebalance our economy, aren’t we, so we should be encouraging Manchester and Birmingham to have these flights coming in?

Andrew Haines: My understanding is that there is not much appetite from those emerging markets to fly to regional airports, because they don’t see that that is the attractive route. They don’t see that that is where the airlines can make money and they don’t see that is where the passengers are. It is a function of the market.

Q367 Kwasi Kwarteng: You are saying that the emerging markets want to fly to a UK hub or a UK main airport. Is that what you are suggesting?

Andrew Haines: That is what they are saying. I am trying not to act as a spokesman for them, because obviously I can only take what they say.

Q368 Lucy Powell: I want to ask about air passenger duty, which is a related issue. Do you think that is a prohibitive framework around the expansion of some of our regional airports? We are going to hear some evidence later on about that. Certainly, there is written evidence about air passenger duty and the differential impact that has on some of the regional airports. You did not comment much on that in your written evidence, but do you have a view on that?

Andrew Haines: As an independent regulator, we try to step away from taxation issues that the Treasury hold close to their chest. At some point, if you increase prices, then it will have an impact on demand. There is very little indication that that is the case at Heathrow at present, but I think you will be hearing from-

Q369 Lucy Powell: I am asking about the regional airports.

Andrew Haines: I suspect they will have done quite a lot of work on that and they will be in a better position to argue that. It is entirely conceivable that, where demand is weakest, and the more you increase cost, then the more that will impact on reducing demand.

Q370 Lucy Powell: You don’t think that is a consumer issue-to offer the consumer the best possible choice in terms of where they want to go? Some of the evidence we are hearing more generally from the airlines and some of the regional airports would suggest there would be more long-haul flights from Manchester, say, in particular, because it is a more attractive airport for some of the long-haul carriers, if there were more attractive incentives for passengers and airlines to go there. Do you not think that is something you should look at if your interest is on the side of the consumer?

Andrew Haines: Because taxation is a matter for central Government and the Treasury, we would just be ploughing a furrow that would serve no purpose. The airlines and airports are in a very strong position. They have presented all that evidence and they will be having discussions with Government. Frankly, it is just not a good use of our time and resources. They are in a much stronger position to make the case.

Q371 Steve Baker: Mr Haines, I want to take you back to something you said earlier about constraining the profit that can be made. I didn’t quite catch what you said. Could you explain whose profits you are constraining and how?

Andrew Haines: I was saying that, in the absence of economic regulation, where airports were deemed to have market power, then the profits of the airports could increase because they could significantly increase their charges.

Q372 Steve Baker: I am trying to understand this. We talked earlier about political interference in airports constraining capacity. I wonder how we are ever going to sort out the issue of capacity without allowing a price system to signal where private investors ought to put their money

Andrew Haines: In the same way as Heathrow Terminal 5 was built, for example, or, indeed, the second runway at Manchester: under a regulated entity. If there is a clear economic justification for that, then regulation can support that investment, and it is strong support of the investment. It can help secure it as opposed to a shareholder simply deciding to sit on the excess profits.

Q373 Steve Baker: I know it is not very fashionable to have excess profits these days, but would you accept that, if regulation constrains the profit that is made and the prices that are charged, then that is bound to distort the incentives available to private investors for building new runway capacity elsewhere?

Andrew Haines: No, because if through that regulatory regime we can actually give them some certainty about return on investment, it can support it. That is how we invest very heavily as the UK through regulated entities. I am not saying it is a perfect solution, but investment in regulated assets can give a very sound investment to private sector investors. I am not for a moment saying that they shouldn’t then be allowed to make a reasonable return on that investment. That is one of the key regulatory judgments: what is a reasonable return? I don’t see how simply allowing excess profits for a monopoly provider guarantees investment in competition. Surely, it is in their interest to control that market.

Chair: I don’t think we will pursue that.

Q374 Julie Hilling: I want to ask you a little bit more about route licensing. Have regional airports asked for a route licence for various routes and been turned down by the CAA?

Andrew Haines: Route licensing is not done by the CAA. It is done through bilateral negotiations now with the Department for Transport, except where there is something called scarcity. Recently, we held a review of the Moscow route. When BMI was taken into IAG, their routes became available and three parties bid for that route, effectively-BA to extend, Virgin and easyJet. In that case, where the bilateral agreement between states restricts the amount of slots, we will determine the allocation according to those people who bid for it on the basis of the case they make. Beyond that, we don’t have a role in those route licences.

Q375 Chair: Is this a decision made by Governments rather than by you?

Andrew Haines: Bilateral agreements are negotiated by Governments. We will decide where there is scarcity and there are more requests than demand.

Q376 Julie Hilling: Bilateral between whom? Who are the parties?

Andrew Haines: Non-EU states-for example, Brazil or Russia might have an agreement. The reason there was a shortage of capacity on the Moscow route was because the bilateral agreement between the UK Government and the Russian Government restricts how many flights there can be every day. Nigeria is another case we were involved with quite recently. Historically, that was the case throughout the world, but in Europe we now have unconstrained access-open skies-and in some cases now, Europe also tries to negotiate on behalf of European states.

Chair: This is clearly an important area that we will pursue further.

Q377 Julie Hilling: I have one more question. In terms of that spread to airports outside the south-east, if Moscow or whoever else opens up a route and if a regional airport, particularly when you look at areas of concentration of population such as the midlands and north-west, was saying, "We believe we would have the population here for a route," has the decision then been made to say instead, "No, it has to go in the south-east; it can’t go to the north-west"?

Andrew Haines: No, I don’t believe that is a decision that has been taken. That is a function of the market at present. To be honest, that is a matter of policy that would be best directed at DFT.

Q378 Karen Lumley: Do you think there are too many airports in the UK?

Andrew Haines: No, because I rely on the market to decide that. If there were, then they would close in due course. We do occasionally see airports close; we see airports that struggle. Consumers in the UK have benefited enormously from competition. The idea that we should put all our eggs into one location in the south-east of England would be hugely detrimental to consumers. There is a lot of demand for low-cost routes and for geographical areas and pockets of distribution. We need quite a sophisticated aviation strategy across the UK that deals with the regions and the south-east as well as London.

Q379 Chair: Is there anything the CAA can do to facilitate that?

Andrew Haines: First of all, we want to ensure that Government in coming to its decision doesn’t jump to locations but talks about four key steps. We say that any future capacity has to be based, first of all, on demand. You don’t build a white elephant; you look at what demand is for. Secondly, it has to be financeable. Thirdly, it has to be safe; it needs to be in a location which can be operated safely in terms of airspace and operations. Fourthly, it has to be sustainable. We think the Government should be setting out criteria in each of those four areas and then allowing the private sector to respond to that., because the Government are not going to be building this new airport. It is a danger of policy that we assume that somehow the Government are going to decide where the airport is going to be and that people will suddenly choose to use it. That is not how it has worked in the UK.

Q380 Chair: Mr Deakin, what is NATS’ role in enabling airspace to be used to the maximum, wherever it might be?

Richard Deakin: In effect, that is what is required of us by our licence: to make airspace available to all users. Depending on whether decisions are made around, for example, airports, it is up to NATS to make sure that we can guide those aircraft around safely and efficiently to meet the capacity that is in place at those airports. Therefore, from our point of view, it is in our interest to make sure that, whatever solution people come up with for south-east airport capacity, it is a solution that we can meet cost-effectively.

Q381 Graham Stringer: Following up on Julie’s question, wouldn’t part of the solution to the lack of use of runway capacity in the regions be to have a completely open skies policy for regional airports, so that any airline in the world could fly in and out of a regional airport without a bilateral agreement? That could be declared unilaterally.

Andrew Haines: That has some attractions in terms of opening up competition. I think you might get resistance from UK airlines, who would say that we would be giving away negotiated rights, but from a consumer perspective and as a consumer-based regulator, I can see attractions in opening that up, yes.

Chair: Thank you very much for answering our questions.

Examination of Witnesses

Witnesses: Robert Sinclair, Chief Executive Officer, Bristol Airport Ltd, Paul Kehoe, Chief Executive Officer, Birmingham Airport, and Andrew Harrison, Chief Operating Officer, Manchester Airports Group, gave evidence.

Chair: Good afternoon and welcome to the Transport Select Committee. Could you give your name and organisation, please?

Paul Kehoe: I am Paul Kehoe, Birmingham airport.

Robert Sinclair: Robert Sinclair, Bristol airport.

Andrew Harrison: Andrew Harrison, Manchester airport.

Q382 Chair: There have been discussions on aviation policy and, in particular, the need for extra capacity for a long time. What is new about the current debate-or is there anything new?

Paul Kehoe: I don’t think there is anything new. We are all still operating off the 2003 aviation White Paper. The policy has not changed. All that Government have done is brought in the Davies Airports Commission to look at the capacity crisis that we have. I would contend that we have a capacity crisis, but it is at one airport: Heathrow. The rest of the system is fairly free operating. We need the Commission to look dispassionately at the whole thing and come up with a solution that benefits the whole of the UK and not just the south-east. The primacy in the new strategy, when it comes out, is that we need to rebalance the economy of the UK and not just the south-east.

Q383 Chair: Are there any other views on what is new at the moment?

Andrew Harrison: The only other thing that I would say has changed is about BAA and the break-up of BAA. Therefore, we have seen slightly different dynamics appearing in London. We are seeing Gatwick competing with Heathrow rather than playing a more complementary role. We will see that continue as the break-up of BAA continues. Other than that, it is pretty much as Paul said. We welcome the debate about capacity, and there needs to be a national debate rather than a debate focused in one part of the country.

Q384 Chair: Mr Sinclair, do you want to add or disagree with anything?

Robert Sinclair: I would echo those comments and add that clearly we have seen a significant change in the industry over the last 10 years. There has been a proliferation of low-cost travel in particular and point-to-point travel from regional airports, which has opened up new markets for people in the regions, which has been highly successful. That model has certainly reached a point now where its potential growth going into the next decade is looking far more challenging and difficult. The costs facing airports and airlines in the regions are potentially causing some real challenges for the continued growth of that particular market.

Q385 Kwasi Kwarteng: Clearly, a central element of this discussion is the nature of hub airports and the need for hub airports. There is one view that suggests we need a hub airport to compete in this industry; there is another view that says, no, we don’t need a hub airport because we are going to have more point-to-point travel-the argument goes that we can fly from Newcastle to Beijing or Newcastle to places in China; that’s the idea. Where do you sit on the spectrum between supporting a hub airport and saying that we are going to have more point-to-point travel and a hub airport is irrelevant?

Paul Kehoe: My view is that we focused on a single hub, and while Heathrow has fulfilled that role, it is actually a very big point-to-point airport. The reason that is the case is because it sits alongside a very successful city generating traffic, which is London. If we look at some other economies around the world, they have gone for a multi-hub system. Airline strategy dictates airport policy. In the case of this one, we have seen the then national carrier now IAG-British Airways-pull back to Heathrow from the regions and concentrate their activity at Heathrow, so they are now some 48% of the traffic there. We don’t have a national carrier serving these other points as many other places do.

Modern resilient economies-not putting all your eggs in one basket-have pushed traffic out to various other airports. In the case of Germany, it has a number of hubs. Even the UAE with a population of 5 million has two hubs, Abu Dhabi and Dubai, again built around their two airlines Etihad and Emirates. In a modern economy, it is risky to put all your eggs in one basket. What we should be doing is encouraging other airlines to come in at some future point and take the role at other hubs across the UK-perhaps two or three other hubs, perhaps four, one for each part of the UK: south-east, midlands, north and Scotland, where they can be almost a secondary hub but nevertheless have some form of hubbing operation.

Q386 Iain Stewart: My questions are primarily to Mr Sinclair, but others may want to comment. In your written evidence you make the point that Bristol airport has a leakage of just over 6 million passengers a year to London airports, primarily to short-haul destinations. What is the reason for that? If the market and the passenger base are there, why don’t the airlines match that currently?

Robert Sinclair: There is a very significant leakage, it is of that magnitude. In terms of the actual numbers, it is split, broadly speaking, 50:50 between short haul and long haul. There are certainly instances where that leakage occurs for a number of reasons: it can be down to frequency or airlines; it can be down to loyalty or corporate arrangements, or destinations that may not be flown from Bristol but are offered from Heathrow or some of the other London airports. The point that we have made is that there is a very large market that we believe we can serve. We do not expect that we would be able to serve all of that market, but we do believe that, with the right policy levers, regional airports such as Bristol can expand the range of services that they offer to people who live locally to the airport and, by virtue of doing that, prevent a significant amount of surface access, which obviously incurs time, cost and emissions, for people travelling to the London airport system.

Q387 Iain Stewart: The airline witnesses that we have had before us have said they will go where the markets exist. What will it take for them to come more to your airports?

Robert Sinclair: We do see that from time to time. We see some airlines coming and occasionally we see them going. We know from the evidence that we have, and certainly the feedback that we receive from airlines and passengers, that when we have the services available from Bristol people prefer to fly from Bristol-they prefer to fly from their regional airport.

Q388 Iain Stewart: Is it more of a marketing point? Is the default assumption that to fly to a destination you have to go to London, Heathrow or wherever? Is that the primary reason?

Robert Sinclair: No. That is potentially a reason, but there is a complex list of reasons. It is more to do with the general nature of demand and in some cases the potential profitability of a service for a particular airline. There is a point at which services that are available from a regional airport are profitable and can fill that service. When they are there, we know that they are very popular.

Andrew Harrison: From Manchester’s point of view, our numbers are more like 5 million surface leakage. We would see in the UK it being certainly 14 million passengers driving to London to catch flights that they could otherwise have potentially caught locally. There is a number of reasons for that. Part of it is to do with the fact that some routes are just too thin to fly, so they need to be aggregated through one part of the country-Heathrow plays that role for BA, for example. There is also a point where airlines can see the benefits of consolidation, not just for the routes that are perhaps too thin, but also the routes that could be justified from different airports but from a strategic point of view they see the benefit of bringing those all together. That is part of the challenge.

It is probably fair to say that 80% of flights in the UK that originate from the UK are point-to-point; they are not hub flights. Therefore, people do want to travel from their local airport if possible. That is the role that we, as Manchester, have focused on at all of the airports in our group-trying to make sure that we represent the needs of our local passengers, so they don’t have to congest the roads and go to London if necessary.

Q389 Lucy Powell: I can perhaps offer a third way on the point Mr Kwarteng raised earlier, based on some of the evidence we have heard. There is not really an either/or in terms of a hub or elsewhere, but possibly the development of a hub helps the other airports too and we need to have a strategy that looks at both of those things.

If you had a magic wand and you could ask for two things from Government that could help unlock the potential of your respective airports with respect to routes, costs or any other issues that you face, what would those two things be?

Andrew Harrison: The first one is APD. I am sure we will come on to talk about APD, but we do believe it distorts the market and disproportionately more so once you get out of the congested airports in the south-east and into the airports that have capacity. These are routes where potentially there is a lower percentage of business passengers and there is perhaps more elasticity to price and, therefore, people do make choices. We would look to put in place an APD charging framework that based on congestion, so it would be higher in congested airports and less so in non-congested airports, with the aim of trying to more evenly distribute the demand across where the capacity is.

The second thing, having sat in on the end of the last session, would be around open skies at regional airports. Alongside the debate, we are clearly seeing, if not the enactment of bilateral debates and negotiations, that the thought of that is something that does impact on the minds of the Chinese carriers to whom we speak. That is clearly an issue for them. As the Government or other agencies are talking to third-party countries, we would ask them to promote regional airports as a way of accessing the UK, given that our airports in London are more congested. Those would be the two main things.

Robert Sinclair: I would certainly agree with respect to APD. That is the key issue in terms of the development of an airport such as Bristol, in particular, long-haul APD. We saw a number of years ago that that was one of the key reasons why our daily service on Continental Airlines had to be withdrawn-the significance of APD. We do not have the demographics, the level of inbound or the substantial numbers of business passengers to ensure that in all cases services of that nature can be profitable. We hope they will be in the fullness of time, but at the moment, in the current market circumstances, they are not. We would certainly be very supportive of a regional rate of APD. For us, that would make a significant difference.

If I had a magic wand, the other thing item would be regulatory cost. The regulatory burden on regional airports is significant. We operate in a highly competitive market. Airlines are putting significant pressure on us in terms of our charges. We find it extremely difficult to pass on any form of additional regulatory cost or burden to our customers or to their ultimate customers, being the travelling public. That, ultimately, means that airports need to swallow those costs. We need to become more competitive and that, unfortunately, has an overall impact on how we can develop the airport. Importantly, in terms of the job-creation role that we play in the regional economy, it does prevent us from doing that.

Paul Kehoe: I would concur on APD, although I would say on that issue that the Chancellor wants his £3 billion a year and he is not going to give that up lightly. Therefore, what he should think about is encouraging a moratorium on new start-ups. He would get his money eventually, but he would allow the airline to make profits so that it can invest in the routes. Together, we can share in the pain of starting the route, and the Chancellor gets his share at the end.

The other factor for me in terms of waving a magic wand is that, when you go round the world, people certainly know about the UK and they certainly know about London. When you see "LON" come up, which is the code for London in the booking system, that is where passengers go to. 80% of our passengers are home-originating-they come from the UK. In the future it is going to be more overseas. We would like to see the Government stand behind its airports and say, "Yes, we have some very important airports in the south-east, but we have a network of national airports to which you should consider flying." That is a very small marketing point. We can tag and sell on the back of that in these markets and say, "Yes, and here are the facilities and the economy that you should be targeting."

Q390 Chair: You don’t feel that is being done at the moment?

Paul Kehoe: I don’t believe that is being done. There is a concentration on the south-east. When we have been overseas, as most of us have at these airline and airport conferences, we are selling our communities. They recognise that Birmingham, Manchester or Bristol is there, but they are all focused on London. They want access to the London market. They say, "Our culture is that we have a series of airports. Does your Government support you?" We say, "No, we are all in the private sector and we are in a very tough competitive market." It is almost discounted that we are not this national infrastructure.

Q391 Jim Dobbin: It is an interesting discussion about hub airports. If you look round the Committee here, you will see that there are a number of members who have an interest in their regional airport. If I tell you I live just a few miles from Manchester, then you will know where my interest lies.

I have just come back from Dar es Salaam via Dubai. I was really impressed with what I saw in Dubai. It is a global hub, if I can describe it as that. Do you think that Dubai and other hubs such as Dubai are filling a gap that Heathrow can’t fill at the minute?

Andrew Harrison: I think Dubai is competing with Heathrow, as are a number of other hubs around the world-we have talked about Abu Dhabi and other European hubs as well. Hubs are created largely not by the airport but by the airline. Dubai is created by Emirates, and it is about the waves of flights in and out and how they come together. That is really what creates a hub. We need to be careful about thinking that we can create a hub and then everyone will just fly in there and connect. It is really dependent on airlines making those decisions. Certainly, Emirates and Dubai airport together have a very compelling proposition. Emirates, Etihad and other airlines are big supporters of regional airports. Without that support into the regions, we would be connected more directly into London and perhaps into other European hubs, but we would not have the same amount of connectivity in the regions if they were not there.

Q392 Jim Dobbin: Are you saying that the UK could not sustain a second international hub?

Andrew Harrison: No, I am not saying that. I am saying that markets create those conditions. If you take Manchester as an example, we have a domestic hub of sorts with Flybe. They have waves flying in and out, and they connect their UK operations through Manchester. Therefore, the opportunity is there to create a secondary hub in Manchester, as there is in other airports. We have to create the conditions for the airlines to make those connections through interlining agreements and that kind of thing. I am not saying that the UK can’t sustain it, but it is the market conditions that will drive that.

Robert Sinclair: From our perspective, Government policy does have a role to play here. The three airports sitting in front of you have recently come back from the World Routes Conference in Abu Dhabi. We have had recent experience of what you witnessed first hand in the middle east. We were all incredibly impressed with the degree of strong Government pro-aviation support that we saw, not just with respect to the airports but with respect to the airlines and the supplier market. What we witnessed was truly a very supportive environment for aviation and the importance of global connectivity. I am not sure we see that here in the UK.

Paul Kehoe: I think it is a question of geography. As power goes eastwards, so the eastern hubs are becoming more and more powerful and important, but Heathrow is still the No. 1 location for transatlantic travel. You can fly from Heathrow to New York 30 times a day-it is almost a bus service and people fly in for that ability. They can certainly encourage high-yielding traffic to do that. I have been impressed by what the people in Dubai have done and certainly Abu Dhabi is following them. 25% of the GDP of the Emirate of Dubai comes from aviation: from the airport and the airline. They have focused on that very clearly. Equally, we are now seeing Qatar doing exactly the same, so it is all three in that location.

More interestingly, coming back to the point that Andrew made about the airline strategy dictating where they fly and what airports they fly through, this week we have seen the announcement that Qatar Airways will fly Athens-New York, connecting those two cities. There is nothing to say that in some future state of the UK there could be Emirates-UK, Qatar-UK or Lufthansa-UK, actually providing services from Manchester, Birmingham or Bristol to a number of locations.

Q393 Chair: Would it be a matter of concern to you if a hub was growing outside the UK and you could not use the UK?

Paul Kehoe: If we were creating jobs in Birmingham from accessing that hub, we would be delighted to have that economic activity to key points around the world. That is what we are aiming to connect to. There are countries we just never get access to at the moment because the routes are too thin. If we can get access via Dubai, Abu Dhabi or Qatar, that is a secondary option for us.

Q394 Chair: Does anyone else want to express a view on that?

Andrew Harrison: The debate for us is not about capacity; it is about connectivity. What our customers, passengers and people who live around our airports value is connectivity. It does not matter to them whether they travel over London, Charles de Gaulle or Dubai to achieve that. They will have their preferences in terms of airlines. They may well prefer BA, Virgin or a UK-based carrier, but, equally, they may well not. That is not our decision as airport operators to worry about. Ultimately, consumers will make their own decisions. It is important that we give them as much choice as possible.

Q395 Chair: Mr Sinclair, do you have a view about a hub outside the UK?

Robert Sinclair: It is just the same in Bristol. We have a variety of connections through major European hub airports, such as Amsterdam, Charles de Gaulle, Brussels airport in particular, and also through Dublin. Those connections work incredibly well. I would make the same point as Andrew. For our people, the most important thing is frequent and cost-effective access to global connections, which they achieve through those hub airports.

Q396 Karen Lumley: We hear a lot about rebalancing the economy. Tell us what role you feel you have to play in that rebalancing of the economy? How could Government help you do that?

Paul Kehoe: It is well known that for every million passengers airports generate somewhere between 600 and 700 direct jobs. Work done by the West Midlands Economic Forum has demonstrated that if we grow to our ultimate capacity-i.e. we use the maximum on the runway, which is circa what Gatwick does-across the midlands another 230,000 jobs could be created from that economic activity. Given that four wards in the midlands are the highest unemployment zones in the country in terms of percentage unemployment, we think that is something to go after. Certainly, what we are seeking to do with our local authorities is create a spiral of success for investment. As the two previous guys have said, connectivity delivers that. We believe we can capture that.

Robert Sinclair: The key thing that we are very focused on is growing inward investment into the west of England. We know that air travel connections, and in particular international air travel connections, are a major determinant for businesses that are looking to relocate into a particular area-most importantly in this case, international businesses that are looking to relocate into the UK regions. That is certainly something that we are very focused on.

We are also very focused on driving inbound tourism, which to the west of England is a very important industry, with some major tourist attractions in our catchment area. That is another key issue that we are focused on, in addition to the matters that Paul has touched on.

Andrew Harrison: I would say the same thing. From our point of view, as a group, we help to generate something like £3 billion for the UK economy and support 85,000 jobs nationally. Clearly, with all the airports around-and I heard the question earlier about whether there are there too many airports-they do drive job creation in all their locations, and that is important. Equally, as Robert said, it drives inward investment. For example, Frontier Economics has said that developing countries are 20 times more likely to develop relationships with UK cities if there is a direct connection. This is why this connectivity issue is so important. That is the point I would make. Connectivity is critical to enable airports to continue to support their local community.

Q397 Karen Lumley: If the routes were properly deregulated, do you think you would be able to attract more long-haul flights into your airports without a bilateral agreement?

Andrew Harrison: It would certainly help. It depends in terms of short haul and long haul. On short haul and medium haul, we are in a situation where there is much more intra-Europe and it is much easier to do that obviously. In terms of long haul, certainly it is a barrier; it is just one of a number of barriers though. We have been talking to Chinese carriers, and one third of the people who left the UK to fly to China last year originated from the north-west, but it is difficult for the Chinese on a number of fronts: there is the constant issue of visas, and ust the spectre of having to go into bilateral negotiations for the rights is something that plays on their mind, alongside the route economics and so on. It is just another barrier that they have to overcome.

The critical fact is that on long haul, given the strategies of the UK carriers, understandably, regional airports have to rely on overseas carriers for long-haul connectivity. Therefore, the fact that a UK carrier, as part of those negotiations, can raise an objection or can try and negotiate bilaterals back into that country puts a third party’s not unbiased view into the pot-

Q398 Karen Lumley: Are you talking about British Airways?

Andrew Harrison: It could be British Airways or it could be BMI. One example from the past has been a route between Hong Kong and Manchester via Moscow. That was announced by Cathay and then had to be withdrawn on the basis of BMI objecting. It then had to go into bilateral negotiations and achieve something in terms of connectivity between Moscow and the UK, but it ended up with Manchester not getting its route from Hong Kong with Cathay. There can be other vested interests at play, not necessarily by BA but by other commercial interests, which do not act in the overall interests of the regional economies, for example.

Robert Sinclair: This has not been a significant constraint at Bristol. Most of our traffic is intra-EU short-haul traffic, but it is interesting to note that some of our carriers are expanding their destinations. For instance, easyJet has recently started serving Moscow. EasyJet is our largest carrier, and in the fullness of time we would expect that bilateral agreements or potential constraint from bilateral agreements could, potentially, impact services from Bristol. It is not a constraint currently.

Paul Kehoe: In our case, we have not been able to play in the game because we haven’t had a runway that is long enough. We are currently adding 400 metres of concrete to the end of our existing runway, which will effectively buy us 2,000 nautical miles of range. From 2014, we will be able to enter that market in terms of the long haul. We are currently restricted to places within the range of 4,000 or 4,500 miles, such as Delhi, Dubai and Florida. The runway will potentially give us Beijing and Shanghai, the key markets that the manufacturing hub of the UK is accessing. One company of the 16,000 exporting companies in Birmingham generates 400 business trips a year to Shanghai alone. We know there is a market there. It is a case of being able to compete in that market with the right facilities.

Q399 Graham Stringer: Mr Sinclair, you were talking before about regulatory burden. Can you be more specific? You were here when the CAA gave their evidence. It surprised me that they were so relaxed about 50% increases in charges. Can you give us some specific examples of how the regulatory burden affects Bristol?

Robert Sinclair: Certainly. By the way, we are deeply concerned about the CAA’s proposed increase in charges. That is something that we will take up with them directly. We are well aware of that, and their charges are just an example of additional cost that we have faced in the last several years.

Another example is police services costs, which regional airports have had to assume in the last several years as well. Security requirements are an ongoing and very important burden for regional airports. There are radio spectrum costs and so forth. All of these costs do mount up. When we exist and participate in a highly competitive market, it is extremely difficult for us to pass on those costs to airlines.

Q400 Graham Stringer: When we were taking evidence before the CAA Bill 12 months ago, both Ministers and the CAA told us that there were going to be less costs on airports. Is that your experience or not?

Robert Sinclair: It certainly has not been my experience, no.

Q401 Graham Stringer: Can you give us written evidence in some detail on how much extra you are paying against that commitment to lower costs?

Robert Sinclair: I would be delighted to. Clearly, I don’t have the numbers in front of me today, but I would be delighted to follow up with written evidence of the additional costs that we have had to face over a period of a number of years.

Q402 Graham Stringer: Mr Harrison, you gave an example of losing a route to Moscow because of objections from BMI. Do you have any other examples that you can give us?

Andrew Harrison: We don’t necessarily get involved in negotiations between airlines and the bilaterals as an airport. I believe these debates must go on fairly regularly. We got involved in this one literally because the route had been announced and then it had to be withdrawn. Therefore, we got to understand some of that. I can certainly go back and see whether we can provide more examples.

Q403 Graham Stringer: As I understand your point, it is that, if there was a completely open skies policy for regional airports, then BMI would not be able to object, and there are routes out there and flights that would come in that you could get. It would be useful to have real examples of that.

Andrew Harrison: We can certainly look at providing some of that. The issue is that it is part of one of the barriers to entry in a regional airport. A regional airport is operating as a second-tier airport. Therefore, we have to make sure that the attractiveness of those airports is as good as it possibly can be. Taking away all those possible barriers, of which this is one, is really important, but we will certainly look to see if we can find more examples for you.

Q404 Graham Stringer: Mr Kehoe, listening to your evidence before, it was interesting that you were talking about these hubs that have been built up in the middle east on the basis of having a dedicated airline, whether Etihad or Emirates. Do you think there is any chance in the UK of any airline hubbing outside the south-east? Do you have any evidence that that is likely to happen at Glasgow, Manchester or Birmingham?

Paul Kehoe: I have no evidence other than the example that I always use, which is Lufthansa in Germany, where they have two dedicated hubs. One is at Frankfurt, a city one sixteenth the size of London, and they have 60 million passengers going through that airport. Munich is the secondary hub, which is the same size of Birmingham in terms of the city population but is Europe’s sixth largest airport, with 38 million passengers going through it. It was a decision of the airline to operate through those two airports. The Germans go further than that and they are even cleverer: they build in resilience by effectively owning SN Brussels, Swiss Zurich and Austrian Vienna, and they have a secondary hub at Düsseldorf. If there is a problem for a Birmingham passenger with connectivity and there is a problem in Frankfurt, they can give the passenger a number of other choices. I think secondary hubs, dual hubs or three hubs can work. There are many examples around the world.

In the UK, it does not work because we only have one national airline or so-called national airline, and that is concentrating its activity on feeding its hub at Heathrow.

Q405 Iain Stewart: I have a follow-on question. We have heard discussion about a split-hub model, with high-speed rail potentially playing a part. Do you see it as viable that Birmingham airport could effectively become part of the Heathrow hub with a rail transfer between the two?

Paul Kehoe: The national carrier is facing problems today at Heathrow with its three-terminal operation, Terminal 5 being its hub but having to operate from Terminal 1 and Terminal 3, and they would say that a split-hub operation will not work. They cannot even make it work at Heathrow because of the difficulties there. I accept that. If you had more than one hub, it would have to be a different airline or probably a different alliance. At the moment at Birmingham we have Star and SkyTeam-the two alliances. We don’t have any Oneworld operations-Oneworld obviously concentrates at Heathrow. Birmingham’s Oneworld operation sits at Heathrow at the moment. SkyTeam and Star, with a number of airlines in each, are doing very well and exporting passengers to their particular hubs. I don’t think a split hub with the same airline will necessarily work. It would have to be a different alliance or a different airline. The connecting time and processing time would be greater than the current minimum connecting time at Heathrow, which is 90 minutes. What airlines are looking for is typically 45 minutes and certainly less than an hour.

Q406 Iain Stewart: Do you think that transfer time is doable within the current high-speed rail plans?

Paul Kehoe: High Speed 2 for me does something rather marvellous. I know that in the previous session someone said it was not a game changer. I believe it is a game changer for Birmingham airport, because it lifts the airport and moves it 70 miles closer to London. Effectively, it puts it at Edgware on the Northern Line, which is the equivalent of being inside Luton, Stansted and Gatwick; it is only seven minutes further than T5. That gives us opportunities. I doubt that there will be a split hub. Having said that, British Airways were there for 60 years, but for 20 of those 60 years they operated a facility called EuroHub very successfully. They actually did this hubbing operation through a dedicated terminal at Birmingham, but bringing a passenger into Heathrow, processing them there and transferring them to Birmingham, I don’t think it would work.

Q407 Iain Stewart: I have one final question on that EuroHub point. Do you think other airlines-not British Airways-could move a EuroHub out of Heathrow to Birmingham and therefore free up extra slots at Heathrow for long-haul destinations?

Paul Kehoe: Another example I can give you is that, when Air India moved their European hub operation to Frankfurt, when they were about to join Star Alliance, they lifted the aeroplanes that were flying into Heathrow and moved them to Frankfurt. It did not work for a variety of reasons to do with the capabilities of the airline back in India and the cost at Frankfurt. They went to a tender process. Three airports were in that tender process in the end: Birmingham, Dublin and Copenhagen-Barcelona was an early casualty. There were those three, and then finally it was a head-to-head with Birmingham versus Dublin for that European hub for Air India, where they would bring aeroplanes in and swap the passengers over. In the end, the problem became so difficult for Air India that they moved it back to Delhi, so the current European hub now is Delhi for Air India, which is bizarre. You would think it would have been anyway, but for their New York transatlantic services they initially used Heathrow, then Frankfurt and now Delhi. As I say, they considered Birmingham as an option.

Q408 Julie Hilling: The idea of a secondary hub would seem a wonderful solution for all of us, but it does seem that what you are saying is that, unless there is another airline that will actually bite that, there is no chance. Is there the chance of another airline biting for a secondary hub?

Andrew Harrison: There does need to be a secondary airline or airlines that want to come together to create that joined-upness. As I said, from Manchester’s point of view, we have domestic feed through Flybe feeding into Manchester. It is then about joining that feed up with other airlines that are flying in. It is possible that that could be created, but we have to work hard at it and it is something that would take time.

Chair: If there are no other views, thank you very much for coming and answering our questions.

Examination of Witnesses

Witnesses: Graeme Mason, Planning and Corporate Affairs Director, Newcastle International Airport Ltd, Craig Richmond, Chief Executive Officer, Peel Airports and Regional Executive, Vantage Airport Group, Derek Provan, Managing Director, Aberdeen Airport, and Darren Caplan, Chief Executive, Airport Operators Association, gave evidence.

Chair: Good afternoon, gentlemen. Welcome to the Transport Select Committee. Could you give your name and who you represent?

Graeme Mason: I am Graeme Mason from Newcastle airport.

Craig Richmond: Craig Richmond from Liverpool John Lennon and Robin Hood, Doncaster and Sheffield airports.

Darren Caplan: I am Darren Caplan from the Airport Operators Association.

Derek Provan: I am Derek Provan, Aberdeen airport.

Q409 Chair: The latest forecast of the need for more aviation capacity has reduced the amount that was predicted. Do you think we still need more capacity and, if so, where?

Graeme Mason: The modelling that the DFT has been using over the last couple of decades is very London-centric and perhaps underplays the potential in the regions. Even taking account of that, it demonstrates that there is a need for decisions to be made on additional capacity. We have lost a decade in terms of aviation policy since the 2003 White Paper. Therefore, decisions now need to be made for years to come. Absolutely, we still have a capacity issue.

Q410 Chair: Mr Richmond, do we need capacity and do you have any evidence that you need more capacity at your airport?

Craig Richmond: I don’t think that we need any capacity at our airports. It is interesting that, as you go further away from London to the regional airports, we actually have ample capacity. It is quite clear that the south-east needs more capacity, but we have plenty of spare capacity at our airports, both runways and terminals.

Q411 Chair: Are there any other comments on capacity?

Darren Caplan: From a national perspective, we want both vibrant point-to-point airports and sufficient world-class hub capacity. They are different things. As Craig said, some of our airports are fine when it comes to capacity, but we do have an issue with hub capacity.

Just to put some figures on to the table, the UK’s hub capacity has increased in the last 10 years by 4.3%. If you compare that to Spain at 47%, France at 20.3%, Holland at 11% and Germany at 9.4%, you can see there is an issue with that particular type of airport.

Derek Provan: In the region we have lots of spare capacity. However, we still need access to Heathrow and to the south-east. There is still a capacity issue there for us.

Q412 Chair: Do you all need access to Heathrow’s hub? Would it matter if you could use other hubs outside the UK? Some of you are already doing that. Does it matter that it is Heathrow?

Derek Provan: Certainly, we already have access to Dublin, Copenhagen, Amsterdam, Paris and Frankfurt. However, if we add the demand for all of our European hubs together, it is still less than the demand from the region to Heathrow. That is based very much around the connectivity that comes from Heathrow. The industries that we support within the region, predominantly oil and gas, desire that connectivity globally. What is important to them is their ability to connect quickly and efficiently throughout the day, whereas we find with some of the other European hubs that they may have more destinations through their networks, but they don’t have the number of connections during the day. We have that demand just now with all of the other European hubs covered.

Graeme Mason: I would echo that. It is interesting that, if you were to draw a map of airports and their view on the issue of hub connectivity, particularly via Heathrow and the south-east, you would see that the north-east, Scotland, Northern Ireland and perhaps some of the airports in Yorkshire and the north-west further north are supportive of the hub. That is because, in the case of the north-east, we are relatively poorly connected. The Eddington Report said that we needed more connections, not less. It is not an either/or; it is an and. We have done very well as a region to secure the Emirates services in 2007. That has recently been upgraded to a Boeing 777. Notwithstanding the progress that we have made, Heathrow remains our single biggest hub, carrying 500,000 passengers a year, half of whom are interlining. That is the single biggest air route and the single biggest service that operates out of the north-east of England.

Craig Richmond: In Liverpool, we don’t have a hub carrier right now, but our customers tell us they want to get into Heathrow. The problem with getting into Heathrow if you are not already there is runway slots. What we see going forward would be increased capacity at Heathrow, with some carve-out for regional airports to ensure that they have connectivity. Our business people want to connect through Heathrow to the rest of the world.

Q413 Chair: Do you think the CAA should be empowered to ensure there is a link from the regions to Heathrow?

Craig Richmond: I don’t know exactly what the best legislative way to do that would be. Certainly, you need to ensure you have some connectivity, because the further away you get, the harder it is to connect to the rest of the world. Heathrow is the way to do it.

Darren Caplan: The airlines are very clear that we don’t want hub capacity exported overseas. Whatever happens in the next three or four years with the Airports Commission, we want hub capacity in the UK.

Q414 Chair: How many connections do you all have to Heathrow? Mr Richmond, I know you said you did not.

Craig Richmond: No.

Graeme Mason: We have six a day carrying those 500,000 passengers, but in due course that number of slots may come under pressure. It is the provision of additional capacity at Heathrow in terms of a third runway that will provide the opportunity to put in place a planning condition or legal agreement that allowed some of that additional capacity to be used for regional air services. In the build-up to a new runway, it would be quite difficult to put arrangements in place that were in line with EU regulations. There is a link between the continuance of regional air services and the provision of a third runway.

Derek Provan: We currently have eight a day to Heathrow, which has been reduced from 12 in the recent merger between IAG and BMI.

Darren Caplan: If you look at the way that our UK hub has lost routes, going from about 20 domestic routes down to seven now, and if you look at our international connectivity from about 222 to 180 now, that is why we need to address this issue, whatever the answer is.

Q415 Graham Stringer: With the exception of Gatwick and some of the groups representing people who live near to Heathrow, virtually all the written and verbal evidence that we have had is supportive of a third runway at Heathrow. Do you think the fact that we are having another inquiry when most of the information is known is really a reflection of the aviation industry’s inability to get its act together?

Craig Richmond: It would be unrealistic to expect everybody to agree, because we are geographically separate. I have very different concerns from Manchester, for example, and our runways are only 26 miles apart. We just have different traffic and different modes of operation. It is a difficult problem. Everybody realises that airport capacity in the south-east is a very difficult political problem, but it just seems to be so obvious to add another runway and then think about a fourth. It is surprising to me that it just seems to get studied and studied to death. I despair that a decision will be made in any kind of time because of the political nature of it. It just seems so obvious to me that it is the right answer. I don’t think that the Boris Island idea is theoretically impossible; I just think it is practically not very probable.

Q416 Graham Stringer: My real point is that we have major airports, major airlines and aircraft manufacturers based in this country, and 95% of all that industry think that a third runway at Heathrow is necessary; yet the Government feel able to defer the decision. Mr Caplan, do you think that the aviation industry is not shouting as loud as it could do?

Darren Caplan: Rather than an inability of the sector to get itself together, I think it is an inability of the Government to get itself together. We had a 2003 White Paper that had proposals in it. We had an election in 2010, and that went out of the window. Since then, we have had an absolute shambles when it comes to policy making. We have had an aviation policy framework; we have had a call for evidence on the hub; we have had an Airports Commission-a whole variety of things. We are getting on the right track now so we have a process in train, but there is no doubt there has been a lost decade in terms of policy making between 2003 and now.

The question is, going forward, what do we do? Let us accept the process. Let us try and say it is going to work. We have an Airports Commission that is going to look at both point-to-point and hub capacity. The Government have to look at all the options. They have to come to findings as quickly as they possibly can. If it is going to be 2015, so be it, but the key thing now is for the political parties to commit to act on the findings of that Commission, because, without doing that, as you say, we are going to find ourselves in the same position in three years’ time with nothing decided.

We are a great industry. We are talking about 1 million jobs, £50 billion GDP and £8 billion of tax revenues. We shouldn’t have to lobby you guys. We shouldn’t have to lobby the Government. The Government should be coming to us and saying, "How can we deliver the economic growth and success for the future?"

Q417 Iain Stewart: I have a factual supplementary to the Chair’s question about your flights to Heathrow or your wish for flights to Heathrow. Of the passengers who go, how many are going to London as a destination and what percentage are transfers?

Graeme Mason: Ours is 50:50, so 250,000 are point-to-point. They are not necessarily going to London. They may be going to west London or the M4 corridor and, therefore, Heathrow is by far the most attractive option as compared to the East Coast Main Line, for example. So 50% are going point-to-point and the other 50% are interlining.

Derek Provan: From us, 34% are connecting and the rest are point-to-point.

Q418 Iain Stewart: What do you believe your market would be, Mr Richmond?

Craig Richmond: We had a hub through Amsterdam with KLM up till just about a year ago. Given the economic circumstances, they decided to pull the route, but we were getting up to 60% connecting to the rest of the world.

I would point out something as well. You may notice that I have a slightly different Liverpudlian accent. My company comes in for board meetings from Australia, Vancouver and New York, and it is really hard to get to Liverpool. We are in the business, but it is very difficult. You either have to land at Heathrow and catch the train or you can try to catch a flight to Manchester. I wonder about what that does to business in Liverpool when it is so hard to get there.

Q419 Chair: What could the Government do to assist you in developing your airports and use some of that spare capacity you have all spoken about? Is there anything the Government could do?

Graeme Mason: Listening to the previous sessions, a lot of ideas were discussed, but the biggest single barrier to route development in the regions and growing passenger numbers is air passenger duty at its current levels. Therefore, an intervention by Government on that would have a very rapid impact.

Craig Richmond: I agree. APD is huge for us. We are the low-cost airport in the country. Our average fare is about £50, and £13 APD puts people off. It makes it difficult for me to market the airport to other low-cost carriers in Europe, and they have told me that.

Q420 Chair: Mr Provan, do you have the same view?

Derek Provan: APD would be the single biggest influence to help us in our business.

Chair: You have the same view.

Derek Provan: We only have a catchment area market of 600,000, so already we are less appealing to airlines. We are in a peripheral region in Scotland. We are eight hours on the train to London. That, on top of the current APD taxation level, is very offputting for incoming airlines.

Q421 Chair: Mr Caplan, do you agree with that from your association?

Darren Caplan: It is very simple. If you want to fly a family of four from the UK to the US, it is £268. If you fly from France to the US, the same family pays £38. That is a difference of £230 for exactly the same flight. You have to wonder what is going on there, so, yes, APD is the big issue.

Q422 Graham Stringer: Do you agree with Bristol airport that CAA is increasing both the regulatory burden and the costs unnecessarily?

Graeme Mason: The successful regional airports are those that have a low cost base and are able to attract airlines in with competitive deals, so cost is a very important issue. That is the way in which we then generate growth and economic impact for the regions that we serve. The regulatory regime, whether it is in terms of security, policing or economic regulation, adds costs, and when those costs arising are grossly out of proportion to other elements of our cost base, then it is of significant concern. The CAA increases that went through last year and that are proposed again this year are a huge concern.

Q423 Graham Stringer: I know the figure per passenger, but how much would it be as an absolute sum for Newcastle if the proposed increase is passed?

Graeme Mason: If you look at the economic regulation element of it alone, it is into the thousands in terms of costs; but it is on top of everything else. One of the things that we have asked to be looked at is the overall regulatory cost burden that is imposed upon airports, so that it looks at all elements rather than looking at each element and justifying that element on its own merits. By looking at the cumulative impact of all of these cost burdens, then it gives you a more complete picture.

Chair: Thank you all very much, gentlemen, for coming and answering our questions.

Prepared 19th December 2012