Memorandum by The Federation of Tour Operators
THE AIR TRANSPORT INDUSTRY
1. The Federation of Tour Operators is the
trade association representing all the UK's major tour operators,
including the leading vertically integrated UK travel groups Airtours
plc, First Choice Holidays plc, Thomas Cook Group and the Thomson
Travel Group. A list of our membership is appended (Appendix 1).
Together our members take approximately 20 million customers on
a package holiday each year, accounting for around 90 per cent
of the package holidays sold in the UK each year. Our members
employ directly more than 50,000 people. Their combined airlines
represent a fleet of over 170 aircraft, taking passengersvirtually
all Britishon 40 million single trips a year, and flying
from 21 UK airports.
2. The FTO exists to promote good standards
and uphold good practice in all areas of package holiday provision.
This means providing financial protection for our customers, managing
health and safety responsibly, and promoting a regulatory framework
for the industry that is fair and effective for both customer
and operator. We are committed to providing the best value for
money and quality of holiday possible.
SEPTEMBER 11 ON
3. Like all sectors of the air transport
industry, the package travel industry has been seriously adversely
impacted by the failure of the aviation insurance market and the
dramatic increase in costs in the wake of the events of 11 September
in the USA. In the immediate aftermath, FTO members collectively
suffered customer welfare, repatriation and other exceptional
costs of around £40 million. 
4. In terms of the impact on our market,
it is undoubtedly the case that there has been a collapse in consumer
demand, demonstrated across all our programmes but particularly
noticeable in certain key destinations, most especially Florida,
USA. At the present time, advance bookings for all destinations
are running at 40-50 per cent less than we would normally have
expected for this point in the season.
5. The Committee will be well aware of the
results for the package travel industry of this "double whammy"
in terms of increasing fixed costs and falling customer demand
following September 11. Our members have been forced to react
by cutting capacity. The four biggest vertically integrated groups,
Airtours plc, First Choice plc, Thomson Holidays and the Thomas
Cook Group, have all announced major redundancy programmes in
recent weeks, affecting more than 2,500 employees. Smaller and
specialist operators have been particularly hard hit and there
have been 15 failures among ABTA members from September 11 to
the present time, compared with just four in the same period last
6. A detailed estimate of the financial
impact on FTO members of the increasing costs and falling demand,
prepared to 31 October, is appended (Appendix 2). The Committee
will understand that this information, which has been collated
by an independent consultant on behalf of the FTO, is commercially
sensitive material and we would request that these figures are
kept confidential by the Committee. We are happy to provide the
Committee with an update or with any additional figures which
may be useful.
7. Both the immediate impact in the days
following the attacks on the USA, and the impact on aviation which
has been seen since, have in many respects been greater on charter
airlines than on scheduled and no-frills operators, and their
ability to mitigate this impact is also less. This is because
of two factors: the consumer protection regulations which govern
the sale of package holidays in the UK and the long booking cycles
for package holidays.
8. Charter airlines have just one customertour
operators. The sale of package holidays In the UK by tour operators
is regulated by the 1992 Package Travel Regulations, which implement
the 1990 EC Directive on Package Travel, Package Holidays and
Package Tours. The Regulations however go further in some important
respects than the requirements of the Directive. They require
tour operators absorb any additional
transportation costs (which include the additional security and
insurance charges now being incurred), and exchange rate costs,
to the value of 2 per cent of the price of each holiday. There
is no such provision in the Directive;
tour operators must absorb all such
costs within 30 days of departure. This compares with 20 days
in the Directive.
9. Because of these provisions, even those
few tour operators who have reserved the right in their current
brochures to impose surcharges have had to absorb these costs
for bookings made since 11 September to date.
10. In contrast, the scheduled and no-frills
airlines are not restricted from adding a surcharge to their prices
to cover additional costs arising, and some UK airlines, including
British Airways, have already announced that they are to do so.
11. It is a characteristic of tour operating
that there is a very high proportion of fixed costs combined with
slim margins. What is less well understood is that package holidays
have a very long planning cycle. The costs on which the next summer
season's brochure prices as well as hotel and air capacity commitments
are based have to be crystallised many months before the passenger
departure dates. Typically, brochures are published for a season
which starts 12 months later. We have appended a diagram which
shows the booking cycles for 2001-04 (Appendix 3).
12. In contrast with the scheduled and no-frills
airlines, which are exposed for a relatively short period between
the passenger buying a ticket and travelling, most package holiday
bookings are made long in advance of the departure date. Brochures
for Summer 2002 would normally have gone to press several weeks
ago, and operators need to publish Summer brochures ready for
the peak booking season in December and January. However, the
likely insurance, security and other transportation costs which
might apply to air-inclusive holidays next summer and currently
impossible to estimate accurately.
13. This means that operators are forced
to make an estimate of what costs might apply a year or more in
advance. Estimate too low, and at the time of departure the operator
will take a financial hit on each and every customer departing-a
financial risk which may be too great for many operators to bear.
Estimate too high, and although operators will discount their
prices once costs are clarified nearer the time of departure,
any customer booking in the meantime will be paying an additional
premium. While in the normal pattern of costs, operators are able
to make sensible forecasts based on what is likely and what has
been the situation in previous years, in the current uncertain
situation following the events of 11 September and with what may
be a long military campaign in Afghanistan, it is impossible to
make any sensible estimate of what costs might apply next summer
14. The UK package travel industry is highly
competitive and price sensitive. The FTO's members are working
hard to restore consumer confidence and take sensible business
decisions, to ensure a swift return to normal market conditions.
However, the stark reality of the present situation is that without
some support from public funds, and without Government support
to give tour operators the flexibility to recover these extraordinary
costs from the consumer, British tour operators will be in an
untenable position with unquantifiable risks. There have already
been casualties in our sector and there is no under-estimating
the seriousness of this situation.
15. To help tour operators deal with this
situation, the FTO is asking Government to announce provision
compensation from public funds for
the impact of the closure of airspace;
support from the Government in alleviating
the extra insurance and security costs, so that tour operators
do not have to absorb these costs during the winter season (November
2001 to March 2002); and
amendment of the Package Travel Regulations
to allow us the flexibility to recover the extra costs which may
arise from customers booking in the future.
16. In addition, tour operators welcome
the Government's commitment to restoring confidence in the air
travel sector and would be grateful for continued support in promoting
the message that customers can have every confidence in Britain's
air travel industry,
17. The FTO looks to the Government for
compensation from public funds for the immediate impact of the
closure of airspace following the events of 11 September. We have
asked the Government to take into account that in addition to
the closure of US airspace for four days in the immediate aftermath
of the attacks, airspace in Israel was also closed following the
attacks on the USA.
18. Whilst the major financial impact of
the closure of airspace immediately following 11 September was
on the airlines, scheduled and charter, we believe the Government
should also acknowledge and compensate for the costs which have
impacted directly on tour operators. Unlike scheduled airlines,
the responsibility of tour operators to their customers extends
beyond the provision of a flight and so when planes are grounded
or diverted, they bear the cost of accommodating customers who
cannot travel or have not reached their destination, and of repatriating
those customers once airspace reopens, in many cases having to
charter additional aircraft to make up for stranded planes. Tour
operators were still repatriating customers stranded by the closure
of airspace on 21 September. In addition, tour operators, unlike
the scheduled and non-frills airlines have had to bear the costs
of compensating customers whose holidays have been disrupted or
19. Appendix 2, which is supplied in confidence,
includes an estimate of the costs of the closure of airspace borne
by tour operators. We are happy to provide the Committee with
any additional figures which may be useful.
20. The EU Transport Commissioner, Loyola
do Palacio, has asserted that it is the European Commission's
view that in "most of the security-related" costs should
be borne by the [Member State] Governments". [EC press release,
24 September 2001]. We endorse the Commission's view that in the
short term the additional security related costs should be borne
by public funds. Now that the terrible events of 11 September
have demonstrated that an aircraft can be used as a deadly weapon,
it is clear that airline security is a matter not only for airline
passengers but is very much in the greater public interest.
21. The costs of security are varying from
week to week at present and differ according to the UK airport
from which flights originate, and also according to the destination
airport. At present the average additional security cost is estimated
at around £1.80 per passenger. This already represents a
significant burden on the whole air travel industry. For tour
operators, who bear the costs of additional security passed on
to them by charter carriers, but cannot pass the costs on to customers
(owing to the rules governing surcharges in the Package Travel
Regulationssee paragraphs 32-37), the burden is the greater
and the uncertainty over likely future costs more damaging.
22. We are happy to provide the Committee
with any additional figures or estimates which may prove useful
in relation to the security charges in effect at present.
23. The third party aviation insurance market
effectively collapsed immediately following 11 September. The
Committee will be aware that, following notification of the cancellation
of airlines' war liability insurance cover on 20 September, the
Government acted to fill the gap in cover that would have grounded
British airlines, and provided an indemnity for third party war
and terrorism liabilities above $50 million. The charge for this
indemnity was waived for 30 days. On 22 October the Government
acknowledged that the market had not been restored to anything
approaching normal operation, and extended this scheme at no charge
for a further 30 days.
24. The Government is currently offering
airlines a choice between government and commercial cover for
liability above $50 million from 24 November, when the current
guarantee will expire. In effect this "choice" is not
a realistic one for UK airlines, who have all chosen to take the
Government scheme from 24 November because of the financially
unattractive nature of the commercial proposal, and the continuing
uncertainty surrounding the future of solvency of the relevant
25. In contrast US Government has introduced
a third party liability limit of $100 million until 21 March 2002.
Even within the EU, different Member States have responded differently
and this leads to competitive imbalances. The German government
has extended its cover to 31 January 2002 and has deferred any
decision to charge, to avoid disadvantaging German airlines against
competitors from other Member States. We would like to see the
UK Government following this example.
26. Tour operators do not believe that a
proper market for third party aviation insurance can be or will
be restored until the US airlines, which contribute around 80
per cent of the premiums in the market, return to the commercial
insurance market from March 2002, when the US Government's guarantee
of 180 days expires. Without the income from the US airlines,
insurance brokers do not have the funds or the certainty to offer
cover at a commercial rate.
27. We are concerned that the monthly expiry
of the UK Government's guarantee, which has led to press reports
suggesting that "Airlines breathe a sigh of collective relief
. . ." [Evening Standard, 24 October 2001] damages public
confidence in air travel.
28. The FTO believes that a public and unambiguous
statement that the UK Government will act as guarantor of last
resort for the same 180 day period as the US Government, that
is to March 2002, would do much to restore confidence and put
pressure on the insurance market to return to normality.
29. The FTO also believes that the UK Government
should offer lower premiums on its own insurance scheme, in recognition
of the lack of a genuine market and of the burden of uncertain
and spiralling insurance costs.
30. Support during the period to March 2002
would be particularly welcomed by tour operators since it would
give us come assurance through the winter season, during which
we cannot pass any additional costs arising on to customers, that
we will not be hit by spiralling and untenable insurance charges.
31. We are happy to provide the Committee
with any additional figures which would be helpful in considering
32. As the Committee will understand, fundamental
to any consideration of the impact of the events of 11 September
on the package travel industry is the issue that under the Package
Travel Regulations tour operators must absorb any additional transport
costs, including increases in security or insurance cost, up to
the value of 2 per cent of the holiday price, and all such costs
within 30 days of departure. These regulations are more stringent
than the EC Directive, which requires absorption only within 20
days of departure and does not include the "2 per cent rule".
33. FTO has asked the Government to amend
the 1992 Package Regulations by:
Removing the requirement for tour
operators to absorb the first part of any surcharge up to 2 per
cent of the value of the holiday (delete paragraph 11 (3)(ii)).
Amending the prohibition on surcharging
within 30 days of departure to within 20 days of departure (amend
paragraph 11 (3)(i)).
34. By permitting this approach brochure
prices may remain normal and competitive, without building in
aviation insurance and security cost increases that may or may
not in the event prove to be necessary, or have any bearing on
the actual costs for departure dates up to a year later. Tour
operators would have the flexibility to recover recover from customers
any exceptional costs resulting from the events of 11 September,
which were unknown at the time of booking, and this will we believe
make a significant difference to the ability of tour operating
businesses to survive the difficult period of increasing costs
and falling demand.
35. We believe that consumers would prefer
to have an "11 September" surcharge on the final invoice
in the knowledge that the precise amount will be clearly attributed
to the specific security and insurance charges applicable at the
time. This is likely to be more transparent and more helpful than
a guestimate rolled into a price increase, typically many months
36. These particular requirements in the
Package Travel Regulations solely affect UK tour operators. The
additional requirement to absorb the first portion of a surcharge
to 2 per cent of the holiday price is not included in the EC Directive
or implemented in any other Member State, so non-UK tour operators
are in a more flexible position and have a competitive advantage.
37. Similarly, UK scheduled and no-frills
airlines are able to surcharge their passengers on their own initiative,
and in fact some UK airlinesincluding British Airways-have
already announced their intention to do so. Without the same flexibility
as other UK air carriers, and tour operators in the rest of Europe,
UK tour operators are at a competitive disadvantage.
38. As a matter for the Department of Trade
and Industry, we appreciate that the issue of the Package Travel
Regulations is not strictly within the remit of the Committee.
However, the Committee will know that the Air Travel Trust fund,
which is part of the ATOL scheme of financial protection for package
holiday customers administered by the Civil Aviation Authority,
provides a back-up for the individual bonds that tour operators
provide as a condition of their ATOL. If a tour operator were
to collapse, and the bond lodged with the CAA were to be insufficient
to cover all customer liabilities (perhaps since the operator
has collapsed during the peak season) then the CAA would call
on the Trust fund to meet those additional liabilities.
39. The Air Travel Trust fund has been in
deficit since 1996, and its borrowing (of about £9 million)
is guaranteed by the Secretary of State for Transport, Local Government
and the Regions. The guarantee is currently for £21 million.
The FTO believes that in the current circumstances, this guarantee
may well prove inadequate to meet the liabilities which could
40. The CAA, supported by the travel industry,
has for some time been petitioning the DTLR for primary legislation
to allow for a customer levy to replenish the Air Travel Trust
fund. The Government has not yet found Parliamentary time for
41. Should there be significant failures
in the package travel industry, and the current guarantee prove
inadequate, the only option would be an increase in the Fund's
borrowings. We would be seriously concerned at the repayment implications
for tour operators and their customers of such an increase in
42. In addition, the FTO understands that
the current uncertainty around the Trusts ability to meet its
obligations means that any levy powers the CAA were given might
be put into effect at short notice, relative to our long brochure
lead times (which are explained in Appendix 3). As the Committee
will understand, if a levy came into effect after brochure prices
were published, and if tour operators were unable to pass this
levy on to customers because of the limitations of the Package
Travel Regulations, this would place an even greater financial
burden on tour operators.
Federation of Tour Operators
19 November 2001
The members of the Federation of Tour Operators
Airtours plc, Wavell House, Holcombe
Road, Helmshore, Rossendale, Lancs BB4 4NB
British Airways Holidays Ltd Astral
Towers, Betts Way, London Road, Crawley, West Sussex RH10 2XA
CIT (Holidays) Ltd Marco Polo House,
3-5 Lansdowne Road, Croydon, CR9 1LL
Cosmosair plc Tourama House, 17 Homesdale
Road, Bromley, Kent. BR2 9LX
First Choice Holidays plc First Choice
House, London Road, Crawley, West Sussex, RH10 2GX
Hotelplan Ltd 10-18 Putney Hill,
London, SW15 6AX
Kosmar Holidays The Grange, 100 High
Street, Southgate, London, N14 6FS
Kuoni Travel Ltd Kuoni House, Dorking,
Surrey, RH5 4AZ
RCI Europe Kettering Parkway, Kettering,
Northants, NN15 6EY
The Thomas Cook Group Ltd PO Box
5,12 Coningsby Road, Peterborough, PE3 8XP
Thomson Holidays Ltd Greater London
House, Hampstead Road, London, NW1 7SD
The Travel Club Ltd Station Road,
Upminster, Essex, RM14 2TT
Virgin Holidays The Galleria, Station
Road, Crawley, West Sussex, RH10 1WW
Memorandum by the London
Chamber of Commerce and Industry (AT 17)
HOW EVENTS OF 11 SEPTEMBER HAVE AFFECTED
THE LONDON ECONOMY
London Chamber of Commerce and Industry is the
largest business organisation in the capital with more than 3,000
member companies together employing some 500,000 people. Part
of the British Chambers of Commerce approved network, London Chamber
is an independent institution, owned and directed by its members
and democratically accountable to business of all sizes and sectors
throughout Greater London. We are a not for profit organisation,
raising £7 million each year from businesses and spending
it on practical day to day support services.
London Chamber offers a comprehensive range
of activities. We introduce new contacts, expand trading opportunities
and represent the interests of the capital's businesses both locally
and worldwide. We offer expert advice, information and training,
organise international trade missions and exhibitions, schedule
seminars on important business issues and arrange corporate entertainment
and social events to bring provide networking opportunities for
The London Chamber of Commerce and Industry
runs two economic surveys per month. The London Monitor is a monthly
survey, which gauges the opinions of some 300 Chief Executives
and Managing Directors from a range of businesses across London.
The second, the London Economic Research Programme (LERP) runs
a series of economic modelling tests on London developed by NIESR
examining scientifically the economic indicators for the capital's
London Chamber runs the London Business Transport
Forum. This forum has a membership of 248 London businesses with
a specific interest in transport issues. The London Business Transport
Forum meets quarterly to provide an interface between business
and political figures as well as to receive briefings from transport
Aviation is vitally important to the UK economy.
For every 1,000 jobs generated at an airport there are a further
2,500 jobs created in the economy. Heathrow for example (which
we will see is the most severely affected airport from the events
of 11 September) generates £3 billion a year in wages and
supports over 200,000 jobs across the country.
Heathrow is worth nearly £5 billion every year to UK tourism
London's international connections have been
second to none in the world. This explains in large part why 65
per cent of the world's largest 500 companies are represented
in London, why the capital is home to 539 foreign banks, more
than any other city in the world,
and why the 10 largest American software firms all have a facility
within 30 minutes of Heathrow. Having said this, London's lack
of infrastructure growth to date, may mean that the area does
not retain its status as the international aviation hub of Europe.
We have seen over recent months a downturn in confidence in the
aviation industry. Without a return of confidence we fear the
loss of this business investment.
The latest NIESR forecast of workplace-based
GDP growth for London for 2001 is 2.5 per cent. This forecast
was made in October, and takes into account the events of 11 September.
It compares with an outturn for 2000 of 4.0 per cent, reflecting
the generally tougher economic conditions throughout the year.
The Institute's forecast for 2002 has been cut from 3.0 per cent
in July to 2.4 per cent, below the recent average, but still well
above growth recession levels. These figures, which are based
on NIESR's views of the UK and global economies and which are
at the top end of the consensus, suggest that London's economy
will remain in a basically healthy state.
Turning to output by sector, for 2001 growth
ranges from an increase of 6.1 per cent for business services
to a fall of ¸1.5 per cent in manufacturing. The range is
narrower in 2002, but the highest and lowest sectors remain unchanged,
with business services posting growth of 4.7 per cent while manufacturing
continues to dip, though now by just ¸0.6 per cent.
Most sectors will have to prepare themselves
for a year of lower growth in 2002 compared to 2001. The exception
is the public sector, where growth is forecast to rise from 1.8
per cent this year to 2.6 per cent in 2002, reflecting the public
spending plans announced by the Chancellor earlier this year.
From some sectors, most notably hotels & catering growth in
2002 will be the lowest for several years. This may have the effect
of making thinks appear worse than they are to businesses that
have got used to ever-increasing rates of growth.
This perception may be what lies behind the
general mood of pessimism that has permeated London's businesses
over the past couple of months. It should be noted that the mood
was darkening before 11 September, and the events of that day
exacerbated a collapse in confidence that was awaiting a reason
to accelerate. This is reflected in the findings of the London
Monitor, a regular monthly survey carried out among 300-400 of
the capital's businesses by London Chamber of Commerce and Industry
in conjunction with the Evening Standard.
In the immediate aftermath of the terrorist
attacks on America, the balance of economic optimism fell from
+29 per cent to ¸59 per cent, the greatest monthly turnaround
since the survey began. Though the negative balance lessened slightly
in October to ¸48 per cent, other measures took a turn for
the worse. Expectations about prospects for London have fallen
from the mid-50s to close to zero, while prospects for respondents'
own companies, formerly the most buoyant of measures, have tumbled
from +65 per cent in August to +19 per cent in October.
Perceived Economic Impact post 11 September
In addition to regular questions, the survey
also poses one-off queries, In October, respondents were asked
about the impact on their turnover immediately after 11 September
and in the weeks following, and their expectations for the future.
The main finding is that the immediate impact has lessened: although
more companies (35 per cent) expect turnover to fall than expect
it to rise (20 per cent) over the next few months, this is a smaller
imbalance than immediately after the attacks.
The effect does vary significantly by sector,
however. Over the longer term, both the services and manufacturing
sectors expect business to return more or less to normal over
the next few months. Retail, on the other hand, remains very gloomy,
with just 19 per cent of respondents expecting their business
to recover against 54 per cent who expect it to fall. This indicates
that London's retailers should be prepared for a difficult Christmas
One example of this is Hamleys of Regent Street
where not only has spending by tourists fallen by almost a quarter,
spending by domestic shoppers has dipped by even more, suggesting
a fear of entering city centres (though virtually no businesses
asked by the London Monitor admitted to having cut back on social
visits to the city). It is worth noting that pessimism is more
marked in Central London than in the suburbs. However, this may
reflect the greater preponderance of retailers in the Central
London sample as much as any fundamental difference between the
One regular question asked by the Monitor is
about companies' expectations of their own workforce size. For
as long as this question has been asked, there has been a significant
difference between what respondents expect for overall unemployment
(generally up) and their own staff numbers (also generally up).
As an example of this, in August the balance expecting unemployment
to fall was ¸49 per cent while the balance expecting their
own workforce to growa fundamentally opposite questionwas
+26 per cent. By October, however, while the unemployment balance
had worsened to ¸73 per cent, own workforce expectations
had radically shifted, and now stand at ¸11 per cent. It
should be noted that the latter had been declining slowly throughout
the year, confirming that much of the shedding of staff now blamed
on 11 September was, in fact, in process long before that date.
We asked a question relating to the habits of
business executives regarding their attendance of London theatres.
Only 5 per cent say they have cut back on social visits to London
restaurants and theatres Theatre-land does report a slump in sales,
but this is more likely to be related to the reduction in incoming
The taxi industry is often considered a barometer
for the London economy. The industry has been reporting a small
down turn since the summer months although both statistically
and anecdotally the industry claims that the down turn has been
accelerated post 11 September 2001. The figures for Radio Taxi's
show consistent down turns throughout October and November of
around ¸33 per cent.
There is a well-reported reduction in transatlantic
flights. In October's London Monitor we asked those questioned
if flying habits had changed amongst executives in light of terrorist
attacks. Thirty six per cent said they had experienced delays
at airports because of security checks. Ten per cent of our respondents
said that they have cancelled or postponed flights to the states,
and 6 per cent said that they have cancelled or postponed flights
to Europe. Seventeen per cent commented that they had postponed
decisions about future holiday plans.
Our members Virgin Atlantic initially suffered
enormously in September but now report an increase in sales for
October 2001 compared with October 2000. They largely attribute
this increase to their aggressive low price marketing through
Our member BAA's monthly passenger statistics
for September 2001
show a reduction in terminal passenger numbers in Heathrow (which
handles the majority of transatlantic flights) by ¸13 per
cent. Gatwick shows a reduction of passengers by ¸6 per cent
with Stansted airport's numbers rising at 11.4 per cent. Stansted's
passenger increase seems on the surface to illustrate the insulation
of the domestic aviation market from the problems of 11 September,
although a growth in revenue from short haul, domestic and no
frills flights goes little way to protect the industry from the
massive losses suffered by the transatlantic market.
If we set Stansted's passenger figures against
our members Luton Airport, we get a different story. Luton shows
that there has been a significant impact on the domestic market.
Luton reports that growth from August 2001 against August 2000
has been +6.7 per cent. However, although still increasing, Luton's
growth for September 2001 has suffered a massive fall to +0.9
per cent. October 2001 shows a minimal return with growth recorded
at only +0.95 per cent.
London City Airport's passenger figures show
a ¸5 per cent reduction comparing passenger movements from
October 2000 with that of 2001.
These may be skewed by the bankruptcy of Sabena Airlines.
Looking at passenger statistics of BAA airports
only, the London area total growth is recorded for September 2001
at ¸8 per cent as against the BAA airports growth for Scotland,
which records a healthy +8.2 per cent growth for September 2001.
Many have argued that there was already a reduction
in passenger activity prior to 11 September. BAA's records show
a reduction in growth during the week of 3-10 September of ¸2.3
per cent at Heathrow, ¸1.3 per cent at Gatwick and still
an increase in growth at Stansted 15.3 per cent. Although this
records a slow down at Heathrow, the situation worsens dramatically
for the week 12-18 September with a reduction at Heathrow to ¸21.7
per cent, ¸10.9 per cent at Gatwick and only 11.8 per cent
at Stansted, and the situation only marginally improves throughout
are similarly bleak with overall ¸14.9 per cent growth in
the London region for BAA's London Airports but a Scottish total
of +7.6 per cent growth.
The sector that appears to be worst hit amongst
the aviation industry is the area of cargo. BAA's statistics for
September show a reduction for all airports for September with
Heathrow recording a ¸21.1 per cent change, Gatwick recording
a ¸25.4 per cent change, Stansted showing a ¸24.7 per
cent change. Scotland's overall change for cargo has been almost
equally bad with a reduction of ¸19.2 per cent overall Scottish
The European Comparators
European airports also appear to have suffered.
A recent press release from Frankfurt Airport records that traffic
results continue to be characterized by effects of the 11 September
Frankfurt Airport records a reduction of ¸13.9 per cent Passenger
Growth, ¸11.7 per cent Airfreight growth and aircraft movements
are down ¸2.5 per cent.
The London Chamber of Commerce and Industry
will continue to emphasise the direct relationship between good
air services and economic prosperity, and would look to the Government
and the Commission of the European Union to take every opportunity
to support this view.
The London Chamber believes that the UK Government
should give assistance to airlines as outlined by the European
Transport Council in their guidelines for assistance.
It is important that the UK maintains
similar conditions for the UK aviation industry as the US and
France. This requires the UK to compensate carriers for the losses
incurred from the closure of US.
Cover the extra costs of security
arising from 11 September.
Maintain cover as insurer of last
resort to allow airline operations to continue as normal.
Announce a positive decision on Terminal
High profile government support and
encouragement for air travel.
High profile government encouragement
for tourism in London.
19 November 2001
Memorandum by The Guild
of Air Traffic Control Officers (AT 18)
THE AIR TRANSPORT INDUSTRY POST 11 SEPTEMBER
The Guild of Air Traffic Control Officers welcomes
the opportunity to provide its views on the air transport industry
post 11 September. We will confine our comments to specific areas
of air traffic control and its regulation.
We also wish to make clear that our comments
are from an independent, non-aligned organization whose main concern
is that of the safety of the travelling public and air traffic
controllers who are our members.
The immediate effect was a downturn in the number
of aircraft movements which saw a drop of approximately 6 per
cent at Heathrow and 16 per cent at Gatwick . A more drastic reduction
was in the number of transatlantic flights both from the UK and
continental Europe. Associated with this reduction was an even
larger reduction in passengers carried on transatlantic routes.
However, in the last month, movements have shown
a reducing decline and some UK airports are seeing strong passenger
growth with increases in excess of 15 per cent. Subject to there
being no additional acts of terrorism in the next 6 months we
would expected to return to pre-11 September traffic levels earlier
The financial effects on some ATS providers
have been significant, with the reduction in passenger numbers
and aircraft movements leading to a reduced revenue flow. In the
case of the largest ATS provider, which is 46 per cent owned by
the Airline Group, this has led to an accelerated programme of
cost cutting in areas of staff (support and management), future
projects and research and development.
The Guild is sympathetic to the financial problems
being experienced by some airlines and ATS providers, namely NATS.
We are, however, critical of the speed and scope of the reductions
in ATS ancillary areas and therefore wish to make the following
The continuing role of Government
in NATS (it remains a 49 per cent shareholder with legal responsibilities
attaching to this interest), is essential. If short term funding,
in addition to that already provided by the Airline Group, is
required, then it should be provided to ensure the integrity and
safety of the system.
Clarification in respect of the legality
of the Airline Group disposing of assets belonging to NATS which
remain 49 per cent publicly owned.
Commitment to continue to invest
in air traffic control infrastructure which is a cornerstone of
the Government's PPP rationale.
Air Traffic Controller trainingthe
need for a joint initiative to ensure adequate recruits in order
to meet the increase in growth which will occur in the near future.
The use of tax revenues derived from
the aviation sector should be channelled back into the industry
to help overcome the short term funding shortfall in staffing,
services and infrastructure development.
The role of Government in the Safety
Regulator and whether the funding arrangements (ie the cost recovery
entirely from the aviation industry) remains appropriate for a
safety function who's remit is primarily, to act on behalf of
the consumer (ie travelling public).
The Guild would be pleased to participate in
a wider-ranging inquiry should the Committee consider it appropriate.
Memorandum by Manchester
Airport Group Plc (AT 19)
IMPACT OF 11 SEPTEMBER 2001 ON THE AIR TRANSPORT
1.1 This submission is made by Manchester
Airport Group Plc. Manchester Airport Group is the holding company
for (a) Manchester Airport plc (b) East Midlands Airport (c) Humberside
Airport and (d) Bournemouth Airport. Additionally, Manchester
Airport Group is also the holding company for Manchester Airport
Aviation Services, Manchester Airport Ventures Limited and Manchester
Airport Developments. All companies in the Group have substantial
interests in the aviation sector.
1.2 Manchester Airport Group welcomes the
short inquiry that the Transport Sub-committee has decided to
undertake into the ramifications for the air transport sector
of the terrorist events of 11 September 2001. Manchester Airport
Group (MAG) is of the view that this timely response and intervention
will facilitate a broader consideration of the key issues confronting
British Airports in general and MAG in particular.
2.1 The terrorist attacks of 11 September
were monstrous acts and an affront to civilisation and have been
condemned as such by a plethora of Nation States. Manchester Airport
Group echoes this condemnation and denounces these acts for what
they were: acts of unparallel barbarism that resulted in the loss
of lives of thousands of innocent people of all nationalities,
some of them British.
3. KEY ISSUES
3.1 The use of commercial passenger aircraft
as an instrument of terror had a devastating and immediate impact
on consumer confidence in air travel, in a way never before experienced
in the history of commercial aviation. The impact of this lack
of confidence on the global aviation sector has been well reported
and documented in the press.
3.2 It is critical, even crucial, to make
the point the USA terrorist attacks were not against aviation
per se. Like all terrorist acts, these attacks were against
that nation State. Against this background, MAG strongly believes
the costs of additional measures introduced since, including those
that are as yet unspecified, should be met by nation States in
their planning to counter the possibility of further terrorist
3.3 In the days and months since 11 September,
MAG airports have seen significant fall in consumer confidence
which affected passenger numbersinbound as well as outbound.
3.4 At Manchester Airport, in the weeks
immediately following the events in the USA, passenger levels
dipped sharply and even now continue to do so. The table below
is an illustration of the impact on passenger levels at Manchester
Airport following 11 September, and even though there has been
a slight recovery from the sharp decline in passenger numbers
since 11 September, passenger numbers are still below those for
the last fiscal year (ie 1999-2000). Overall in September, the
long-haul scheduled sector showed a decline of 15.2 per cent,
with the domestic sector showing a reduction of 10 per cent in
London traffic and 3.6 per cent decline on all other domestic
routes. Whilst the Inclusive Tour Charter market is holding up,
bookings for next year are very soft and down at between 30 per
cent-40 per cent compared to last year.
USA TRAFFIC: MANCHESTER AIRPORT W/C 17 AND
24 SEPTEMBER 2001
||American Airline||US Airways
|W/C 17 September 2001||¸22.4 per cent
||¸17.0 per cent||¸11.1 per cent
||¸25.7 per cent|
|W/C 24 September 2001||¸44.5 per cent
||¸29.0 per cent||¸38.9 per cent
||¸42.3 per cent|
3.5 MAG is committed to playing its full part to restore
public confidence in aviation. The success of the "low cost"
carriers in maintaining passenger volumes suggests that early
recovery in domestic and short haul markets is attainable; although
it is MAG's view that the down turn in transatlantic and other
long haul traffic will be severe and prolonged.
3.6 What can the industry, working together with the
Government and others do, to support recovery? MAG would make
a number of suggestions in response to this question.
3.7 First the UK Government must press for a level playing
field for airports and airlines across the Community. In particular,
there needs to be alignment of the approach taken to support for
security costs at airports (see below), insurance cover against
the threat of terrorism or war, regulatory and competition policy.
3.8 Secondly, a fresh approach is required to air service
negotiations. It is imperative to end the uncertainty that bedevils
the development of inter-airline partnerships. The events of 11
September have made stark the commercial imperatives for industry
consolidation, and to move beyond the anachronistic "flag
carrier" bias to the conduct of air service agreements. Protectionism
must give way to the reality that airline economics are driven
by the global market.
3.9 Thirdly, the crisis confronting aviation threatens
employment and economic well-being throughout the supply chain,
including manufacturing industry, inward tourism and investment.
MAG would expect the RDAs to play an important role in working
with aviation interests to develop a strong regional agenda for
3.10 Fourthly, MAG strongly supports the Commission's
decision to prioritise the introduction of a Single European Sky.
A coordinated approach to air traffic control within Europe is
a key element and ensuring the conditions are met for future growth.
3.11 Fifthly, we would hope that the UK Government will
take a lead in discussions to harmonise security standards at
airports outside Europe. At present transfer and transit traffic
is being greatly impeded by UK Government's concerns about security
standards at other airports. For example, there are currently
four PIA flights flying via Manchester between Pakistan and the
US weekly. Technically these are transit passengers and are counted
as such by Government, yet these passengers are deplaned and subjected
to the full rigour of security checks as though they were outbound
4. OTHER CONSEQUENCES
OF 11 SEPTEMBER
(SECURITY & INSURANCE)
4.1.1 Further security measures introduced by the DTLR
following the attacks were implemented at all MAG airports swiftly
and effectively. This was a difficult and expensive process, the
scale of which is not to be underestimated.
4.1.2 The cost of implementing these and other measures
since introduced by the DTLR were met entirely by all Airports
within the Manchester Airport Group. Thus far, there has been
no cost pass-through of any kind to airlines.
4.1.3 Manchester Airport Group is of the view that government
should meet these additional security costs and in this respect,
MAG fully supports the position recently taken by the European
Commission that the reinforcement of security measures should
be borne by Member States. At the EU Transport Council meeting
in Luxembourg on 16 October 2001, a majority of Member States,
including the UK, took the position that airline operators and
passengers should pay for the new security measures. It is MAG's
view that this position ignores the reality that the threat to
airports and airlines is a matter of national security. This decision
is also diametrically opposed to that taken by the US government,
which has reportedly released $3 billion to the American air transport
sector to finance the cost of enhanced security.
4.1.4 In a Parliamentary answer on 24 October, John Spellar,
MP, maintained that the "question of meeting security charges
is under consideration". MAG is of the opinion that an early
resolution of this matter is vital and would urge the government
to meet the additional costs of security measures implemented
by airports, airlines and others affected in a specific and targeted
manner. MAG does not support the position by government that costs
of additional security measures should be channelled through airlines
4.2.1 "We have introduced a new set of measure for
third-party insurance for war and terrorism, in relation to the
airline industry," said the Chancellor, Gordon Brown, on
22 September. "This is a 30 day cover for third-party war
and terrorism, the premium for which we will waive for 30 days".
4.2.2 MAG is grateful to Government for the arrangements
set out below and for giving a lead to the rest of Europe by stepping
in at a crucial time to "underwrite" the UK aviation
industry. The scheme, which initially operated from 22 September,
has been extended to 24 November 2001.
4.2.3 There are two distinct strands to the current government
scheme as follows:
UK AirlinesMust purchase commercial cover
of US $100 million with additional cover up to the level in place
before 11 September 2001 provided by government at no additional
cost to the airline;
UK AirportsMust purchase commercial cover
of US $50 million and purchase additional cover under the government-backed
scheme up to the level in place before 11 September 2001.
4.2.4 What is clear from these strands is that the waiver
by government of premiums to airlines for third party war and
terrorism cover over US $100 million is discriminatory. However,
Government has not given an explanation for the reasons why airports
and other service providers did not receive equivalent treatment.
4.2.5 It is not clear what arrangements will apply for
third party war and terrorism cover once the Government-backed
scheme expires on 24 November. However, all the indications beyond
that date are that additional premium costs will be required.
Manchester Airport Group firmly believes that all parties in the
air transport sector should be treated on the same basis by government.
4.2.6 Finally, early indications are that other classes
of airport insurance are likely to increase substantially. In
the absence of government assistance, MAG, as with other UK Airports,
have no option but to pass their costs to airline operators. In
all likelihood operators would pass these costs on to passengers
leading to higher cost of air travel in the foreseeable future.
5. ECONOMIC CONSEQUENCES
5.1 Since 11 September, trading has been difficult and
the general consensus amongst industry analysts is this state
of affairs will continue for some time yet. MAG firmly believes
the USA terrorist events will continue to depress passenger travel
(inbound/outbound) for some time, with recovery to pre-11 September
levels not expected before Q1/2004.
5.2 Manchester Airport is not immune from these hardships
and the airport is experiencing critical, immediate and direct
negative financial impact evidenced by the following:
Severe decline in passenger figures (circa30
per cent on average) on North America routes;
A fall of circa 10 per cent on domestic London
A cut in airline schedules and frequencies by
BA, Continental, bmi British Midland, KLM, Air Canada;
Malaysian Airlines announced the withdrawal of
its services from Manchester;
The loss of some services including Air Canada,
Egypt Air and others from Manchester;
Deep reduction of inclusion Tour Operators bookings,
which are down 30 per cent for Winter 2002 and 45 per cent for
5.3 Manchester Airport in common with other airports
in the Group is a critical economic catalyst of regional economic
well being. In particular, the reduction in passenger traffic
has resulted in multiplier effects in non-primary sectors in the
Restaurants and Caterers;
5.4 Until the cessation of current hostilities in Afghanistan
and all retaliatory action has ceased, the outlook for the aviation
sector will remain volatile and uncertain.
6.1 The full national and regional economic impact of
11 September is still unfolding and is as yet unclear. However,
there is little doubt it will be profound. From 11 September onwards,
Manchester Airport Group and other UK Airports and Airlines responded
with alacrity and purpose and played their full part in securing
international and national gateways. By the same token, MAG calls
on the government to intervene in a timely, targeted and impartial
manner and assist the aviation industry through what is a very
difficult phase in its history. MAG calls upon the government
to offer tangible and practical assistance to UK airports in the
following specific areas:
Compensation for lost revenue to affected UK Airports
for the 4 days during which USA airspace was closed;
Assist UK Airports to achieve a level playing
field with regard to the funding of security costs across EU Member
Assist UK Airports to meet additional security
costs incurred following the events of 11 September;
Lend support to UK Airports to meet the additional
costs for third-party insurance for war and terrorism;
Work towards breaking the current impasse in the
UK/US Open Skies or Air Service Agreements and provide pro-active
support for the Single European Sky initiative;
The crisis confronting aviation has unleashed
a multiplier effect that threatens employment and economic well
being throughout the supply chain, including manufacturing industry,
inward tourism and investment. MAG would expect the RDA's to play
an important role in working with aviation interests to develop
a strong regional agenda for action.
19 November 2001
These costs include the costs borne by the charter airlines which
are part of vertically integrated groups, as well as the costs
to FTO member tour operators. Back
National Institute for Economic and Social Research. Back
UK Airports: Economic Impact, DTZ Pieda Consulting, September
100 Facts on London, London First Centre, October 1999. Back
Radio Taxis Limited and Dial-a-Cab represent over 4,000 licensed
taxi drivers who work on two of London's largest radio circuits,
providing `as soon as possible' and pre-booked journeys for the
public, business and special needs communities. Back
BAA Traffic Summary: September 2001. Back
London City Airport October Passenger Figures 14.11.01. Back
BAA Traffic Summary: October 2001. Back
Fraport Frankfurt Airport Services Worldwide ANR 46/20001-12 November,