UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 76-vii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Northern Ireland Affairs Committee

An air transport strategy for Northern Ireland

Wednesday 12 September 2012

Kate Sherry

Paul Simmons

Evidence heard in Public Questions 497-573

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Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 12 September 2012

Members present:

Mr Laurence Robertson (Chair)

Mr Joe Benton

Lady Hermon

Kris Hopkins

Naomi Long

Jack Lopresti

Dr Alasdair McDonnell

Nigel Mills

Ian Paisley

________________

Examination of Witness

Witness: Kate Sherry, Deputy Director of Route Development, Ryanair, gave evidence.

Q497Chair: Welcome to the Committee. Thanks very much for joining us. We are starting a little bit early-I hope that is okay. As you know, the Committee is looking at air transportation and air strategy, with particular respect to the way it affects Northern Ireland, so we are delighted to welcome you to the Committee. I understand you are going to do a brief presentation.

Kate Sherry: Yes, if that is okay.

Q498Chair: That is perfectly okay. Please, off you go.

Kate Sherry: Thank you for your time. I will start with a short introduction. I am Kate Sherry, Deputy Director of Route Development for Ryanair. I manage and negotiate Ryanair’s relationship with existing and potential new airports across the bulk of Europe. Together with two of my colleagues, we manage over 200 existing and potential airports. As well as the UK, Northern Ireland and Ireland, I look after Scandinavia, Germany, Belgium, Greece, Cyprus, Ukraine, Austria, the Baltic states and eastern Europe. As you said, I have a presentation to give. I thought I would just put it in some context before I start. Please feel free to ask any questions as I go along or at the end, however that suits.

We are talking about aviation in Northern Ireland. Many countries recognise the value of aviation as a driver of economic growth. In particular, low-cost carriers stimulate demand and passenger numbers, which, in itself, initiates economic growth and prosperity. Therefore, there is extensive competition for low-cost air access across many airports in Europe. Air access is particularly critical to island regions. Aviation links of island economies must be enhanced and optimal, and it is no coincidence that Ryanair started in Ireland, where aviation links to Europe are of critical importance.

Air travel is also a commodity. Price is the only determining factor in the passenger’s decision, especially on short-haul routes, such as the majority of those to Northern Ireland, so the low fares that Ryanair offers uniquely serve to stimulate demand. Tourism, however, is not a commodity. It is not a function of the price paid. Tourists delivered by Ryanair spend as much as those delivered by other airlines, and destinations that have well developed tourism industries tell us that our passengers are equal in terms of the value that they bring to their economy. They save money on the airfare, which is spent in the local region. Tourism is vitally important to Northern Ireland, and the correlation of low fares, air access and tourism growth is well established, both by Southwest Airlines in the United States and by Ryanair and easyJet in Europe. Also, of course, aviation links are vital for business development. Low-cost air access allows face-to-face meetings, new markets to be explored, presences to be established in new markets, and also the development of business relationships.

Ryanair’s purpose is to remunerate our shareholders, but that overlaps with the public interest in tourism. The key ingredient for both of these aims is low airport costs, and reducing airport costs in Northern Ireland would provide a commercially attractive operating environment. That, in turn, would deliver a massive increase in passenger numbers, which would drive tourism revenue. I will get into my presentation shortly but I just want to make the point that, once costs are reduced, the demand is elastic for air travel. Reducing costs in Northern Ireland-or in any economy-would increase passenger numbers, and those passengers would then spend money in the economy.

On this basis, as an example, we have delivered 1.5 million additional tourists per year to the Canary Islands since 2008 following the Government’s decision to introduce discounts for growth. The Government of the Canary Islands then concluded that each extra tourist who was delivered under this scheme spent €1,000 in the local economy, which was the best return on investment for any initiative that that Government could have taken. The total boost to the economy of the Canary Islands has been €1.8 billion since 2008. We have a common cause to develop aviation in Northern Ireland, which, in turn would drive visitors and benefit the tourism and business sectors of the economy.

On page 2 of my presentation, I just have some background information on Ryanair. We have the lowest fares in Europe and this makes us uniquely able to stimulate demand on both new and existing routes, but for this offer to be sustainable in the long term, the lowest costs are also necessary. We have no fuel surcharges, despite escalating fuel costs, which then puts the pressure on the rest of our costs and our business as well. Our traffic this year is forecast to be 80 million passengers, up from 76 million in 2011, and our network also continues to grow. It now comprises 170 airports, 1,500 routes, and 51 bases across Europe. This is a unique network. It allows us to create these connections, which are valuable to the economies that we serve. I have some more information about it that I will present shortly.

We are also number one for customer service and we are very proud of those facts. We have over 90% punctuality, the fewest lost bags and the fewest cancellations. We recognise the value of this for repeat business and to our passengers, but it is also vital for us to keep costs low. Delays cause cost, and we have a reputation as a reliable and efficient airline as well as a low-cost airline. On that basis, Ryanair has grown for 27 years and we continue to expand our route network. Continuing to keep fares low allows us to expand, because we create that incremental demand that only low fares can do. As I said, the demand is elastic, so we create the demand by offering the lowest fares on new routes and on existing routes. We are now the number one international scheduled airline in the world.

Q499Kris Hopkins: Can I just ask a question?

Kate Sherry: Yes, please.

Q500Kris Hopkins: You mentioned the fact that airport costs need to be as low as possible, and that affects yours. You mentioned this elastic bit. Are you actually paying anything for landing and taking off in Northern Ireland?

Kate Sherry: I suppose there are two issues. I am not able to reveal all the commercial details of our deal with City of Derry Airport, but there are airport costs as well as air passenger duty. The cost that we pay for passengers in Northern Ireland is out of line, even though there is a competitive situation and good deals on offer in Northern Ireland.

Q501Kris Hopkins: Are you talking about air passenger duty, not airport costs?

Kate Sherry: I am talking about both. There is a competitive aviation market in Northern Ireland; however, £13 per passenger is an expense that we do not have to bear in other European countries.

Q502Kris Hopkins: You don’t have to tell us the figures but I would imagine that major carriers like you-the three principal, large low-cost carriers-are not paying anything to land. If they are paying something to land, it is very small.

Kate Sherry: We still have to pay air passenger duty on every passenger.

Q503Kris Hopkins: That is what I am saying. I am just trying to get the separation between airport costs and air passenger duty. You are saying it is about both and I am saying I don’t think you pay anything, or the low-cost carriers pay very, very little to land an aircraft.

Kate Sherry: It is the combination of both of those that add to our costs. Even with low airport costs, if you separate that from air passenger duty, we still have high costs to bear.

Q504Kris Hopkins: The reason I mentioned it was that the models that low-cost carriers went into airports with and the reason why you got good deals out of airports was that you brought mass numbers of people in.

Kate Sherry: That is right.

Q505Kris Hopkins: Rather than just 50 people on one flight and people paying a high tariff to land, you brought mass volume there, so they went to the retail shops and into the car parks, which is where airports make their money. The deal was they reduced the tariff for you to land, because they wanted you to come, and that is why you find that one of the carriers will take one airport and another one will take another airport, because those are the deals that are done.

Kate Sherry: That is partly true, but also we do operate in some very busy airports, where there are many other airlines. We are a flexible and efficient airline, so our 25-minute turnaround and our scheduling efficiency allow us to operate in airports with other airlines where we can operate off-peak. As you say, we bring in a large volume of passengers, we have high load factors, and we are efficient in terms of how we move the passengers around. Yes, we deliver non-aeronautical revenue as well as aeronautical revenue to those airports.

Our route network, as I explained, has 51 bases and 170 airports. We are able to operate, from this base network, many unique routes and, as I said, our low-fares offering is what stimulates the demand on many of these routes that are not operated or are of no interest to many other airlines. For that, however, the low costs are a necessity.

We add incremental passengers to the airports that we serve, building on your point. As an example, in Milan since 2009 the total Milan market has grown by 4 million passengers. Of those passengers, 1.3 million are Ryanair, so we add incremental passengers without cannibalising the existing market in the airports that we serve. Our efficient operations and our flexibility allow the airports to work with us at low costs. As you said, we develop the non-aeronautical offering in those airports as well.

A small amount of information about our passenger numbers: we will grow to 80 million passengers this year, and it is only low-cost airlines that are growing and only in the right environment. You will find that legacy airlines are generally consolidating and reducing capacity in the face of high costs and the difficult operating environment. It is only low fares that can-

Q506Chair: Sorry, we are going to have to go and vote, so we will have to suspend the sitting for 15 minutes. Sorry about that. May I make it 15.49 when we reconvene? Sorry about this.

Sitting suspended for a Division in the House.

On resuming-

Q507Chair: Sorry about the interruption. We will carry on but we have lost some time and we have quite a few questions to go through, so I wonder if I could politely ask you to speed up as quickly as you can, please.

Kate Sherry: Yes, by all means. I will just move quickly on, then, to page 5, and there is just a point about our lowest fares of €40, which are the cheapest in Europe. These low fares can only be sustained with low costs, and we cannot sustain an average fare of €40 and generate passenger growth while funding a $70 million aircraft, paying our captains €120,000 a year, $110 a barrel for oil, and £13 per departing passenger APD, as well as airport charges. As well as being unsustainable, this is just out of line with other comparative offers. Reducing those airport costs would create the conditions for an upsurge in tourism.

There is just some background information then on page 8. It is only low-cost airlines that have delivered any traffic growth between 2008 and last year, so all growth in UK and Irish aviation was delivered by low-cost carriers. As I said earlier, air travel is a commodity, so the demand is elastic and low-costs deliver an increase in demand. It is like the mobile phone example, I suppose: when mobile phones were new, it was incredibly expensive to make a telephone call and, as a result, people made very few calls on their mobiles, whereas now it is just pence to make a telephone call, but there are thousands of multiples of calls and texts made every day. So, the total revenue has increased, despite the lower unit price, because of the elasticity of demand. Conversely, when the price is increased, the demand falls again, and the example is exactly the same for aviation. This explains why passenger numbers in the UK are falling while they are growing on the Continent, because of the additional cost burden placed on airlines.

I wanted to address comments made by BALPA that only one airport is necessary in Belfast, which we strongly disagree with. It is our opinion that Belfast is blessed with having two airports. It has genuine competition and does not need artificial regulation. The competition that exists reduces costs and would help to stimulate growth, and those airports in Belfast are competitive, not just in Northern Ireland but in Europe, because of the presence of the other one. Those airports are already built. The owners and operators of those airports want to maximise the returns from those fixed assets.

On the next slide, I just elaborated a little more-I am aware you want to ask some questions-on cities with one main airport, the examples being Prague, Budapest, Dublin, Madrid, Athens and Edinburgh, compared to cities that have two or more competing airports. The trend is for passenger growth where there is competition in an aviation market. In the cities that have one main airport, they have failed policies of high and increasing airport charges. The 6% in Budapest since the collapse of Hungary’s national airline Malev has now turned into a 4% decline. There is no low-cost-carrier growth in these airports, and the legacy airlines are not growing, so they maintain a minimal presence. Cities that have competitive aviation can grow; however, as you can see from the chart, Belfast and the UK are lagging behind. The APD is an inhibiting factor, at a cost of £13 per departing passenger one way and, on a domestic flight, £26 per departing passenger. Additionally-

Q508Lady Hermon: I wonder if I might just interrupt on APD before you move on to another topic. What efforts has Ryanair made to date to seek the abolition of air passenger duty? Letters, presumably, have gone to the Prime Minister and to the Chancellor.

Kate Sherry: That is right.

Q509Lady Hermon: Have you had replies, as a matter of interest?

Kate Sherry: I do not believe we have, no. Our Chief Executive has participated in a campaign with the Chief Executives of easyJet, British Airways and Virgin to highlight the impact of air passenger duty. The response of the Government has been to increase APD again this year, and it has increased by 330% in the last six years. We have had an ongoing campaign to highlight the issue of APD and the detrimental impact on passenger numbers in the UK. However, APD continues to increase and this is the reason for no growth in UK aviation.

Q510Lady Hermon: What nature has that campaign taken? Is it just an email campaign?

Kate Sherry: No, we have participated in the consultations that the Government have undertaken and that the Department for Transport have undertaken. We and the airports that we deal with are heavily involved with the Fair Tax on Flying campaign, which involves mobilising people to sign a petition-it has a lot of signatures-urging the Government to review air passenger duty. We have been very active, both formally and informally, and with the airports that we deal with. However, especially following the introduction of the ETS levy, the Government appears to have concluded that APD is not an environmental tax; it is just a revenue-generation scheme.

Q511Ian Paisley: Kate, could I just ask you a follow-up on that? If APD were to be removed across the whole of the UK, which was, I think, part of the campaign that you joined with Virgin, BA and others, subsequently would the airports that you operate out of increase their charges to you as an operator? Have you considered that and the impact that that may have then on your operations, and would that be passed on to the consumer?

Kate Sherry: Firstly, we do not pass charges on to consumers, because it is our low fares that serve to stimulate the demand. As an efficient airline, we fly full aircraft. Our model is to price the tickets at the price that they will sell. The issue, particularly for low-cost carriers, with APD is that it cannot just be passed on to the passengers. In many cases, it is actually funded by the airlines, hence my comment that the airports themselves then become uncompetitive, because they are higher-cost.

Q512Ian Paisley: I understand that. What about the first part then? If APD was scrapped, do you believe, strategically, the airports would increase their charges to you?

Kate Sherry: No, I do not believe they would.

Q513Ian Paisley: Is there a commercial deal in place to sustain that?

Kate Sherry: Yes, we have commercial deals in place with most of our airports. For that reason, I do not believe the airports would increase their charges. There is really no basis for that anyway, because the airports do not receive the APD income and it does not go into funding aviation development in any way. Additionally, the airports themselves also bear the impact of reducing passenger numbers in the UK. The airports are as supportive as Ryanair and all airlines in the campaign against APD, because it is detrimental to the airports as well. As I was saying about the airports in Belfast-but this is also true for airports across the United Kingdom-these airports are already built, and the owners and operators wish to maximise that asset by increasing passenger numbers, developing aeronautical and non-aeronautical revenue, and achieving the best return possible from their fixed costs. We have delivered no growth in the UK this year; however, Ryanair is growing by 5%. Creating a more competitive or commercially attractive operating environment is within the interests not just of the airlines but also of the airports.

Q514Chair: In view of the time, with the Committee’s agreement, we can take away the rest of this and read it. We have a number of questions and we have to finish by quarter past four. I do apologise for that. Can we move into more general questions?

Kate Sherry: By all means.

Chair: Thank you for the presentation so far. Joe, can you come in?

Q515Mr Benton: Yes. Good afternoon and welcome. I was intending to ask you to give a view on BALPA. I am now looking through your preamble, which I had not got to. I was going to ask what BALPA would mean, or what would you interpret them to mean, when they said to us, at a previous evidence session, Ryanair is not a recognised company with BALPA. That is the original question I was going to put to you. Could you elaborate on that or what you think it means? Having now read your document, you have listed quite a number of things, and it has become quite evident to me-and, no doubt, the rest of the Committee-that the relationships with BALPA are not all that they should be. I hope I am not saying that too strongly. These headings that you have listed: for example, BALPA are a BA union, when, according to their evidence, of course, they have members in other companies right across the board, as I am reading here; language like ‘hankers after the oldie days, high costs, low PAX, no competition’. Can you elaborate on these? It seems that they are not working at all in harmony with you. That is how it strikes me. What is the reason for it?

Kate Sherry: The reason for it is that Ryanair is a low-cost airline and we believe in fair competition and stimulating passenger numbers or traffic through the offer of low fares. Our experience with BALPA is that they are mainly a BA union and that their interest is in protecting what we would call outdated and gold-plated terms and conditions for their members, which, in turn, restricts the competitiveness of the airlines. A pertinent example, although an old one, is possibly the Dublin-London route. Until 1986, there were 1 million passengers on the Dublin-London route, and it was exclusively the preserve of Aer Lingus and British Airways. Average fares were approximately £300. Ryanair challenged this and commenced flying on this route; today, there are over 4 million passengers per annum and the average fare is just €99. Interestingly, Aer Lingus carries three times as many passengers as they did before that route was liberalised.

We have a difference of opinion with BALPA in terms of generating passenger numbers at very low costs and opening up markets, whereas BALPA’s approach is to protect their routes and their monopoly on certain routes in order to protect their own terms and conditions for members. That delivers nothing for tourism, business links or economic growth. Tourism numbers in Ireland are around 7 million visitors per year, which contributes to job creation and the economy. There have been two attempts by BALPA to secure union recognition in Ryanair, which, as you will have seen, has been defeated following the opposition of our own Ryanair pilots.

Q516Mr Benton: Can I just ask one more question on that point? I was going to come to that point about the unsuccessful attempts. I take it when you say ‘opposition by your own staff’, you mean airline pilots. What were the reasons; were they the reasons that you are giving here?

Kate Sherry: I was not involved very closely with this at the time; however, we have a structure at Ryanair of employee representation whereby our pilots and our cabin crew represent themselves, and this works very well. I believe that our pilots understand Ryanair’s methods, policies and how we work as a company, and we feel that they may have felt that BALPA had possibly not necessarily bought into that model.

Q517Mr Benton: Does that mean that they chose to be non-unionised, for want of a better phrase, so it would not matter whether it was BALPA or any other union?

Kate Sherry: Effectively.

Q518Naomi Long: Just to clarify, that is a choice that the pilots made, that there would be no unionisation and they would represent themselves.

Kate Sherry: Yes.

Q519Naomi Long: Are all of your staff without union representation or just the pilots?

Kate Sherry: I believe it is all of our staff.

Q520Dr McDonnell: On page 4 of your presentation, you mention a ‘non-IATA airline’. What, dare I ask, is a ‘non-IATA airline’? Surely, every airline is tied into IATA.

Kate Sherry: I don’t know the answer to that, I’m afraid. I can find out and come back to the Clerk, if you wish.

Chair: If you could write to us, thank you.

Q521Dr McDonnell: My understanding is that every airline had to be licensed, insured and bonded and all the rest through IATA.

My question is very simple: my focus in this question is on the City of Derry Airport, where you are, in fact, the dominant airline.

Kate Sherry: That is right.

Q522Dr McDonnell: Do you have any intention, plans, hopes or aspirations to increase your traffic there by creating other new routes, or, indeed, on the same question, do you have any intention of expanding your capacity in or out of any of the Belfast airports?

Kate Sherry: I will take Derry first, if that is alright. We are the majority-we deal with approximately 375,000 out of around 400,000 passengers a year-in Derry. Northern Ireland is a difficult operating market, as I was explaining, with the APD. Although Northern Ireland is part of the UK, its operating environment is the island of Ireland, and it shares a land border with the Republic, where APD is just €3 per passenger. Unfortunately for us, Northern Ireland is an unattractive commercial proposition as long as the APD is in place. We are happy with our operations in Derry but, in terms of any large-scale expansion or change to our routes, we would require a change in the commercial environment.

However, if I take both Derry and Belfast at the same time, if the APD was to be scrapped in Northern Ireland, that would create a much more attractive environment. As well as in regional UK, our approach would change and, along with the competition that exists between the airports, we would be much more likely to consider expansion in those airports. In terms of the Belfast airports, we closed our base in Belfast City in 2010. We were operating domestic routes, with 800,000 passengers per year. The short runway meant that we operated those routes with payload restrictions, so some seats on the aircraft had to be flown empty to allow take-off and landing to be safe on that runway. For international routes, obviously it is further and you have to carry more fuel, so the penalties were too great for us to be able to operate international routes. After five years of planning review, there was still no decision on extending that runway and, unfortunately, we had no choice but to close our base.

We are in discussions with both airports in Belfast, and we are pleased with how the discussions are progressing. Confidentiality prevents me from elaborating; however, as I said, we are in discussion with over 200 airports as well in Europe, and we continue to seek the best options for our continued expansion.

Q523Dr McDonnell: Would it be fair to ask: could the public of Northern Ireland expect an announcement by the last quarter of this year about potential developments at, say, Aldergrove, the other Belfast airport?

Kate Sherry: I don’t think that is something I can comment on, I’m afraid. We are in discussions, as I said, with the airports, but I am not in a position to be able to comment publicly on that at this stage.

Q524Naomi Long: Just on this point, you have said reasonably clearly that you are not looking to expand in the Northern Ireland market because of the impact of APD. If you are in discussions with other Northern Ireland airports, is that by way of relocating your Derry operations? Others will get into more detail around your bid for Aer Lingus, but if you are not looking to expand significantly, surely a takeover would be a form of expansion. I realise there is a limited amount you can tell us in terms of the detail, but it seems to be a conflict with how you are operating. You are discussing with other airports and you are looking at a takeover of an airline that operates out of Northern Ireland, but at the same time saying you are not wishing to expand your operations. I am just trying to understand better where you are coming from on that.

Kate Sherry: I am, unfortunately, unable to comment at all on the Aer Lingus bid. That is undergoing analysis within the European Union and I am unable to make any comments on that at all. There will be a decision on 14 January, until which-I apologise-I cannot comment. In terms of moving capacity from Derry to Belfast, I suppose the point is we are in discussions with over 200 existing and potential future airports at any one stage. We have a large presence. We are the third largest airline in the United Kingdom, despite the air passenger duty. We also fly domestic routes from Derry. It is an ongoing discussion that the APD prohibits a large-scale expansion into Northern Ireland, to the detriment of the tourism industry and business connections; however, we continue our dialogue with the airports.

Q525Naomi Long: I understand the issue with APD, because I have done a lot of work around APD and its impact. I simply do not understand: there seems to be a direct conflict. There are two ways this can go: you are either talking to other airports to move your existing operation somewhere else, or with a view to doing that or thinking about doing that; or you are talking to other airports with a view to expanding your services. You are saying that the situation as it stands, with APD as it stands-and the Government said yesterday they had no further announcements or considerations to make on that-would mean that you would not expand your services. That is what I am trying to get to the bottom of. In some ways, your description is of an airline that says it cannot expand because of APD, and yet acts as though it is looking to. I am trying to reconcile that in my mind.

Kate Sherry: We have not said we cannot expand because of APD; we have chosen not to expand, and to expand at lower-cost and more attractive airports across Europe. However, as I said, we have a presence in the UK, where we pay APD, and we continue to talk to both of the airports. It may appear to be a conflicting situation; however, I suppose there is a difference between large-scale expansion of the sort that we could deliver in Belfast and Northern Ireland, which would deliver real value to the economy, and discussing with the airport about opportunities that may come up.

Q526Jack Lopresti: I will just have another go at the question, which you said you were not very happy to go into any detail on. We know that the European Commission has blocked two bids already for you to take over Aer Lingus. Are you able to say here one or two reasons why you think you will be more successful this time, as far as the European Union goes?

Kate Sherry: Our Chief Executive has stated that there is an inevitable consolidation within the airline industry, and he feels that now is the right time to make another bid. In terms of this bid, I am afraid I am really not able to discuss any aspect of it at all while it is under consideration. We publish any news or press releases pertaining to the bid on our website but, at the moment, there is nothing we can really add, I am afraid.

Q527Ian Paisley: Thank you very much for your presentation; it has been very helpful and beneficial, I hope, to us and our inquiry. Are you able to tell us anything with regard to your bid to acquire a 25% stake in Stansted and the impact, if you are successful, that may or may not have on your operation in Belfast and Londonderry?

Kate Sherry: Yes, I suppose it is less of a bid for 25% of Stansted. The process of the sale of Stansted has been kicked off after repeated failed appeals by the BAA. We have stated that we would like to become a 25% minority stake in any new holding of the airport. Our position with Stansted is that the charges in Stansted have been doubled since 2007, and this has led to a complete collapse in the airport’s traffic, from a high of 23.9 million passengers in 2007 down to just 18 million last year. Ryanair’s share has increased from around 60% to 68%, so, whilst we have accounted for handling the bulk of the reduction in passenger numbers, other airlines have also deserted Stansted. Until those charges are reduced and returned to more competitive and more appropriate levels, there will be no growth in Stansted, because the charges are simply too high. However, if Stansted’s charges were halved, then the airport could return to growth.

There is already a Stansted service from Belfast with easyJet; however, like any route, the costs are a function of the viability of the route, so lower costs would make any route from Stansted more attractive. At the risk of repeating myself on APD, we would still have the issue of £26 per passenger on a route where our average fare would be €35 to €40. As I mentioned earlier, we pay our captains and our crew; we pay for our aircraft; fuel is $110 a barrel; and there are still airport charges at either end, even though we would like to negotiate an attractive deal. In that context, at £26 for a return flight on an average fare of €40, it is not a particularly attractive prospect; however, reducing charges at Stansted would allow us to grow further and make route expansion a more attractive prospect.

Q528Lady Hermon: Could I just clarify something about Belfast City Airport? When Ryanair pulled out-very abruptly, it seemed to me-of Belfast City Airport, the main reason that appeared to be given was the runway. In your evidence, you have also indicated that, in fact, it is far too short for the size and the fuel and all the rest of it.

Kate Sherry: That is right.

Q529Lady Hermon: Was that the only reason or did APD or other factors enter into it as well?

Kate Sherry: APD was already in existence at the time, although it was continuing to be increased. The APD was an issue in terms of the short runway, because the payload restrictions on the short runway meant that we could only operate domestic routes, which made the APD burden twice as much. If the runway extension had gone ahead, we would have been able to operate international routes, as was always our plan, and develop the passenger numbers. It is difficult to say now. There may have been some consolidation such as we have seen at other airports in mainland UK; however, that would not have been the reason for closing the base entirely.

Q530Lady Hermon: If, tomorrow-and this is most unlikely, we all know that-APD were to be abolished across the UK, is it the case that Ryanair would not come back to Belfast City Airport because there is not an extension to the runway?

Kate Sherry: It is difficult for me to say that for definite.

Q531Lady Hermon: You seemed to make a great play of the fact you did not get a runway extension, and your Chief Executive had waited such a long time and, therefore, very abruptly-because it affected hundreds and hundreds of passengers, including my son trying to get to university-the decision caused an enormous amount of inconvenience to people. I just want to know what Ryanair’s attitude is. If APD seems to be an excuse used for a lot of things-why it is not going to expand etc-let you be clear, please: is it just Belfast City Airport’s runway being too short?

Kate Sherry: APD is not an excuse for anything. It is a genuine cost that we cannot bear and that makes Northern Ireland and the UK uncompetitive. I don’t think we have ever sought to use APD as an excuse; it is a genuine and real issue. The base at Belfast City was closed because the extension of the runway did not go ahead. As I said, we remain in discussions with both Belfast airports. If APD was not a factor on domestic routes, the payload-restriction issue may become less of an issue; however, to operate perhaps another base or an expanded presence from what we had previously, the runway extension would be necessary, because the penalties are too great on international flights. However, there are two airports in Belfast, and Aer Lingus has decided to move to Belfast City. As you will have seen from my presentation, we believe that Belfast is blessed with two airports, because it creates a competitive situation. APD is not our excuse for not growing, but it is a real fact and a real cost.

Q532Lady Hermon: That is very helpful. In response to my colleague, I know that, in fact, it is commercially sensitive and, therefore, you cannot go into the negotiations and we don’t expect you to about the potential takeover of Aer Lingus. Just as a reminder to the Committee, Aer Lingus is now proposing to move from Belfast International to Belfast City. If the outcome were to be that Ryanair did take over Aer Lingus, would Ryanair stay at Belfast City or move back to Belfast International?

Kate Sherry: I don’t wish to be difficult but I really cannot make any comment on that at this stage.

Q533Lady Hermon: It’s alright; I needed to ask you. I can perfectly understand your reply.

Kate Sherry: Thank you.

Q534Nigel Mills: At the risk of being a little cheeky, Ryanair are not always famed for the best customer service in terms of the booking experience, with charges. There are also the rumours about taking toilets off planes. Can you just dismiss all those rumours and confirm how you are going to take credit-card charges forward for people who do fly Ryanair to City of Derry Airport?

Kate Sherry: Card charges are now included in all advertising. We comply with all regulation pertaining to advertising and we still have the lowest fares. I disagree that we are not famed for customer service, but I think what our passengers tell us is important to them is having a low fare, being on time, arriving at a convenient airport, and not having their bags lost or their flight cancelled. In terms of those measures that are important to passengers, our customer service is excellent. There are some unfortunate high-profile incidents that reached the media, where the majority of our passengers become misrepresented at the expense of maybe one incident. Our terms and conditions at the time of booking-and they are issued to the passenger via email on many occasions-are very clear. It is a lot of our terms and conditions that help keep our costs very low, and it is this that stimulates the passenger numbers.

Q535Nigel Mills: Are there no plans to cancel free toilets on planes? That is just a myth, is it?

Kate Sherry: Our Chief Executive never said he would take the toilets off. He floated a plan-that was unfortunate-he suggested a plan to charge for the toilets that would allow the removal of one. As of yet, however, that has not gone anywhere with Boeing.

Q536Naomi Long: I have just two points of clarification, and this feeds into the previous question. It is with regard to your presentation. You mentioned that you have the fewest lost bags of the airlines. As a proportion of overall luggage carried, how much of it ends up in the hold in comparison to other airlines?

Kate Sherry: Our passengers carry 0.3 bags per passenger, so there is one bag, roughly, for every three passengers.

Q537Naomi Long: In the hold?

Kate Sherry: In the hold; that is right. It depends on which route you are on. I flew from Dublin to Stansted this morning, and there were a lot of business passengers and people who were travelling for a short time. There were very few bags. However, if you fly from Malaga back to Dublin, every passenger will have a bag. Paying for bags has changed passengers’ behaviour, undoubtedly, and it has reduced costs. Everybody used to check in a bag at the airport, and now only people who need to check in a bag do so, which means that those people who do not need to check in a bag can save money.

Q538Naomi Long: Just the other clarification: you spoke about your average fare. Is that total fare, including everything-all the add-ons?

Kate Sherry: That is right, yes. It is a one-way fare that includes all the unavoidable charges.

Q539Naomi Long: But not all the other charges that people pay; for example, if you check in a bag, that would not be included in the €40.

Kate Sherry: That includes our average bag revenue.

Q540Naomi Long: That is, basically, if you like, the average comparable fare with an airline, for example, that would offer a free hold bag.

Kate Sherry: That is right, yes, but it is our belief-and passengers voted with their feet as well-that they would prefer to pay for a bag if they need to than have to pay a high fare that includes a hold bag that they may not need.

Q541Chair: I think we will have to move on, but thank you very much for your information and presentation. We will take this away and have a good look at it. Thank you very much indeed.

Kate Sherry: Thanks very much.

Examination of Witness

Witness: Paul Simmons, UK Director, easyJet, gave evidence.

Q542Chair: Welcome, Mr Simmons. Thank you very much for joining us. I don’t know if you were in at the beginning of the last presentation. I was basically saying that we are looking into the whole aviation policy and, in particular, how it affects Northern Ireland, so we are very pleased that you are able to join us today. Would you like to make a very brief opening statement?

Paul Simmons: Yes. I don’t have a presentation, but if I can make a few opening remarks, that would be great. First of all, it is a pleasure to appear before the Committee again. Whatever we can do to help, we are always here to answer questions that I am sure you will have. Just in terms of some numbers, easyJet has been operating out of Belfast now since September 1998, with our first route being Luton. Since that date, we have now flown 34.2 million passengers in and out of Belfast International. In October this year, we expect that number to hit 35 million in and out, and that makes us comfortably the largest carrier in Northern Ireland. In terms of the last 12 months, we have flown 3.1 million in and out of Belfast International-2.4 million of those, or 78%, were domestic, and 700,000 were international. We operate 23 routes at the moment; a 24th is due to start in October, Belfast-Birmingham. In our next financial year-and our financial years run from October to the end of September-so our financial year ending September 2013, we expect passenger numbers to rise to 3.5 million. The increase is primarily attributable to the Birmingham route, a full year of running the Southend route, and also Manchester, which is a new route we started recently.

In terms of our share of the total Belfast market-adding International and City together-we have a 46% share by volume within the year up to September 2012. For comparison, on capacity, Flybe is at 25%, Aer Lingus at 8%, and if you add bmi and BA together, it is 7%. In terms of the history, clearly we have a commitment to Northern Ireland. We have seen other airlines come and go-notably Ryanair exiting in October 2010. By the way, they are not an IATA airline, just to answer their question for them. Bmibaby, as we know, left in June 2012, rather abruptly, following its acquisition by BA. The Aer Lingus move to City will involve five routes being dropped. So, in terms of us and Northern Ireland, we feel committed to the country and committed to carrying on and growing our share as we develop.

In terms of London specifically, we have four airports in London now, so we fly to Gatwick, Luton, Stansted, and now Southend. Southend is now designated as a London airport. The frequencies vary every day, but if you look at Friday 2 November, just to take a random date, we will have 13 services to London on that day. Aer Lingus will have six, BA seven and Flybe four. In terms of employment, we employ 238 people, 170 being cabin crew and 68 pilots, but obviously there are several hundred other associated roles in terms of ground operations in the airport which are employed through other people indirectly.

In terms of the key issues, APD is our key issue in terms of the Northern Ireland aviation market, primarily as a function of our route network, which, as I have indicated, is 75-76% domestic. Getting hit at both ends is a real barrier to the development of tourism, business and just general visiting of friends and family. If you look at the growth of our airline in other areas and other bases around Europe, the growth in Belfast has been lower than it has been elsewhere, and I would attribute a lot of that to the fact that APD acts as a restraining force in terms of making travel easy and affordable. EasyJet’s mission is to make travel easy and affordable for passengers, and we feel that APD is a big barrier to that.

In terms of what we have done about it, we have been very active in terms of lobbying the Government, both before and after the election. We continue to lobby the Government. We continue to be part of the four-airline alliance that you have heard about in terms of calling on the Government to have a clear, Treasury-commissioned study on the impacts of APD, because we believe that study would show that it is a brake and it is a tax which has a disruptive and negative impact. No one is really going to know until someone does the empirical study, and we cannot see a reason why they would not want to do an empirical study. That is our clear call: let’s get on with it, let’s have that empirical study and let’s see what is really happening with APD. Our view is it is a negative tax doing the wrong thing.

Just a couple of things: in terms of recent changes, we welcome the appointment of Theresa Villiers, as Secretary of State for Northern Ireland. We had a good relationship with her when she was at Transport and we look forward to continuing that working relationship. In terms of responses on APD, there was a question I heard you ask earlier in terms of what we have heard from the Treasury. We have had no direct response to our call for an independent impact study on APD.

Q543Lady Hermon: Can I just pick you up, Mr Simmons, on the response that you have just given there, that you have not had a direct response to your call for an empirical study? Have you had an acknowledgment? Have you actually written? Have you spoken to the Prime Minister? Have you spoken directly to the Chancellor? Is this just an email campaign? I know it is very lively; there are certainly lots of emails, and I welcome all of that.

Paul Simmons: No, it is not an email-only campaign. We have had private meetings with Ministers about this, and it is putting the case as to why we believe that this tax is counterproductive. It always comes down to a matter of opinion. In the overall economic environment, it is clear that APD is a reasonably easy tax to collect, because the airlines just pay it over. You can argue that no one really gets hurt because it is a tax on an expenditure, but our argument back, clearly, is that that is acting as a brake on economic growth, and it is acting as a brake on development, particularly in a place like Northern Ireland, where air links are vital. Those two arguments tend to get nowhere-they counter each other-and the only way we can see to break that deadlock is to have an independent study.

Q544Lady Hermon: I was pleased to hear you compliment the appointment of Theresa Villiers as the new Secretary of State. Presumably, this is a conversation that you will be having or seeking to have early with the new Secretary of State.

Paul Simmons: Yes, I have already written to her, actually, asking for an early appointment.

Q545Lady Hermon: To discuss APD?

Paul Simmons: Yes.

Q546Lady Hermon: So, if you were explaining the issue to her, as you are going to explain it to us, in terms of Northern Ireland and air strategy, just identify the key impacts that you see on the Northern Ireland economy from the detrimental effect of APD.

Paul Simmons: I think the issue, basically, is the proportion of tax to the proportion of the fare. Our average fare is around £45; it will be slightly lower for domestic flights. If you look at the APD being nearly £26 for the return journey, it does act as a brake on people travelling. It acts as a brake on people having face-to-face business meetings, going to sell someone something; it acts as a brake on people in terms of commerce and shopping, and all the other reasons that people travel. So, it is very hard to quantify, without this kind of study, exactly what proportion of trips are not being taken as a result. If you just look at the proportion of tax as a proportion of total cost, it is very high. Therefore, our view is that it is acting as a major brake on economies.

Q547Chair: You said you have met various Ministers. You have presumably not met the Chancellor or Treasury Ministers.

Paul Simmons: I have met Treasury Ministers.

Q548Chair: You have.

Paul Simmons: I also believe my colleagues have met more senior Ministers too.

Q549Lady Hermon: Could I just ask you a very direct question? Given that Aer Lingus is in the process of moving to Belfast City Airport, and that British Airways has, thank goodness, come back into Northern Ireland but has based its operation at Belfast City Airport, does easyJet have any plans to move to Belfast City Airport?

Paul Simmons: No. We tried Belfast City Airport with our Luton route two or three years ago. We moved it from International to City and we said at the time, as we were in the process of doing it, that we were moving because we believed there may be an upside in terms of customer satisfaction and, frankly, there may be an upside in terms of the fare that we could achieve. We ran it for a year and we saw neither; we measured it quite closely in terms of customer specification and also the yield, or the fare, that we achieved, and neither moved, so we reverted back to International, because we could see no upside in our operating from City. To have your operation in one base is just slightly move convenient as well, so everyone goes through the same base and engineering and everything else. So, it is just a matter of coalescing around where we think is better for us, and clearly we have a longer-range programme as well, going into Europe, which could not operate out of City.

Q550Lady Hermon: Could you translate "longer-range programme"?

Paul Simmons: Sorry. Yes, things going into Europe. The analysis that we did on our type of aircraft meant that we could operate to places like Amsterdam and Paris from the City Airport, but not much further. Given that we have a number of flights that go further south than that from International, we could not just transfer them to City. We would have to drop them.

Q551Lady Hermon: That was very clear. Thank you very much indeed. You did mention in your presentation that you are proposing shortly to introduce this new route that you have announced between Belfast International and Birmingham.

Paul Simmons: Yes.

Q552Lady Hermon: Are there any other new routes to be opened up with other airports in the UK?

Paul Simmons: There is nothing we have announced-across the UK or just generally?

Q553Lady Hermon: UK first and then you can let us into the secret of beyond the UK. I would be happy to receive all of the information.

Paul Simmons: All I would say is we do try to keep the route network fresh. We added Malta about 18 months ago and, as I said, we added Manchester. So, we will be looking to add extra routes as and when. What we try not to do is churn, so, if we add a route, we try to do quite a deliberate study to make sure it is going to be there for the long term. So, we may not open as many routes as some of our competitors but, when we do, we try to stick with them and make sure it is a long-term, viable route. It is a long answer to your question but I do not have a specific to give you today. However, I can say that we continue to look at new routes from Northern Ireland.

Q554Lady Hermon: Into both the UK and beyond.

Paul Simmons: Yes.

Q555Ian Paisley: First of all, thank you for your commitment to Northern Ireland in general.

Lady Hermon: Yes, indeed.

Ian Paisley: In particular, thank you for your commitment to Aldergrove. As a person who uses Aldergrove regularly, I am not paying lip service to that. I am grateful because it is meaningful to constituents who work at that airport and use that airport, and I thank you for that. Earlier today in evidence, we heard that Theresa Villiers was "the anti-aviation Minister" when she was in her previous role, and that certainly does not bear reflection in the tribute that you have paid to her today. Am I right to assume that that characterisation was grossly unfair?

Paul Simmons: It is not one that we would recognise. We have had extensive dealings with her in her previous role and, as I said, we always had very good and constructive relationships, so I would not recognise that description. If I was to speculate, it may refer to views on Heathrow.

Ian Paisley: I think, to be fair, that was the context in which the remark was made.

Paul Simmons: As we do not fly to Heathrow and have no plans to fly to Heathrow, it does not particularly bother us.

Q556Ian Paisley: Because you were in the public gallery, you heard the evidence session from Ryanair, and I asked them a question about Stansted and their 25% bid to acquire part of that airport or become a shareholder. You fly to Stansted from Ulster.

Paul Simmons: Yes.

Ian Paisley: Do you see that as a direct challenge to yourselves? Do you see that as having an impact, if they are successful in that bid, on easyJet’s business?

Paul Simmons: It would certainly be something we want to take a very close look at. We have, as a company, talked to and are engaged with all of the major bidders, as every other major airline, I am sure, at the airport is, and I think we just have to wait and see how things pan out. Whether it is another ‘£1 to use the toilet story’ or not, we will have to wait and see.

Ian Paisley: Yes-see how it flushes out.

Lady Hermon: Please.

Q557Ian Paisley: In terms of the evidence that we have heard, it is actually quite encouraging to see that there is quite a considerable competitive market operating in Northern Ireland.

Paul Simmons: It is an incredibly competitive market, driven by the two-airport scenario. Quite often, you can see, when the capacity goes from one of the airports, the one that has lost makes a pitch to the other airlines to come in and fill the void, which creates a very competitive situation. The downside to that is: how sustainable is it? We have seen quite a bit of churn in terms of airlines coming and going, and routes being launched and then dropped, so I think competitiveness is great but there needs to be a good, sustainable service for the public as well, and that is what we try to deliver.

Q558Ian Paisley: I was going to ask you specifically about why, commercially, you would choose Aldergrove over, say, Belfast City, but I think you have answered that in your earlier contribution. Mr Chairman, following on from the comments that have been made by Mr Simmons, we should consider writing to the Chancellor and asking why there has been a slowness in response from the Treasury and from the Chancellor in particular to address the issue. It clearly affects this very important business.

Chair: It is something we will take up, yes.

Q559Naomi Long: I had asked a question myself yesterday of Treasury Ministers with respect to whether or not they would commission that research and, unfortunately, the answer will not warm your heart, because it was that they had no plans to do that. Obviously, there will be more campaigning and more questions will be asked about it. The City Airport is in my constituency, and we would be very conscious of the impact that APD has just on business generally in terms of the extra burden that people have to carry in order to be able to travel internationally and nationally. So, that is something we would want to follow up.

Could I just ask: you had mentioned, I suppose, the competitive environment. We have had conflicting views in terms of the benefits of having two airports in Northern Ireland. Some people have come and said it is a good thing and others have come and said that, no, there should just be one. Do you have a view, as an airline, as to whether or not it is good for aviation in Northern Ireland to have two airports or whether it would be better were there just one? I should say three airports, because actually there is also the City of Derry Airport.

Paul Simmons: If you take City of Derry away from this direct question, because it is a slightly different market, an observation would be that it is very unusual for a market the size of the Belfast catchment area to have two airports. If you look at cities around the world of a comparable size, it is fairly unusual to see two airports. Without wishing to repeat myself, the pros of having two are that it does create competition between the airports and also between the airlines; the downside could be that it creates too much uncertainty and churn because people get maybe suckered in; they could launch something, basically, on a deal, the deal disappears or the deal is not as good as they thought, and they have to stop doing it. I cannot think who I am referring to on that, but those things do happen if you have this scenario.

Q560Jack Lopresti: As far as your route between Belfast International and Southend is concerned, is that doing well and do you foresee that expanding in due course? If it were to, would it be a redistribution or would it be an increase in the number of services?

Paul Simmons: First off, it is doing pretty well. We do not see it as a redistribution; we see it as just adding to the choice coming into the London market. I think we still have a job to do in terms of persuading people as to why it is a good entry point. Without wishing to go into ad mode, it is the same distance by train from Liverpool Street to Stansted. It is a really small, purpose-built, brand-new airport, where the plane literally draws up in front of the gate, you walk through a few hundred yards, and you are at a new, purpose-built train station and off to London, going straight past the Olympic site and the shopping associated with that. For many people, it will be an attractive entry point. We just need to carry on making that case, and we are. In fact, our advertising efforts and other marketing efforts are continuing in Northern Ireland to make that case. But it is up and running and we are pleased with how it is going.

Q561Mr Benton: I think you were present, Mr Simmons, when the previous witness was talking about relationships with BALPA.

Paul Simmons: Yes.

Q562Mr Benton: Do you share her thoughts on BALPA?

Paul Simmons: No, we have a very positive and constructive relationship with BALPA, and have done for a number of years.

Q563Mr Benton: So, have you had no experience of, shall we say, the fault-lines that she described?

Paul Simmons: No, I did not recognise that.

Q564Chair: As a general question, you will be aware of the importance of connectivity: people in Northern Ireland flying here, then maybe flying on to China or wherever. I know you do not use Heathrow yourself but do you have a view on the third-runway proposals? How do you see the expansion should take place, or should it not?

Paul Simmons: Clearly, not being directly involved in Heathrow, we are not too vocal on this point, but there is clearly a constraint in the London market and I think, on balance, we can see the arguments for a third runway as being something that would be net positive for the UK economy in general and for the London aviation market in particular. But as we are not a direct stakeholder in that debate, I do not want to go too much further on that, but it would be a net positive as and when it comes along.

Q565Nigel Mills: While we are on the subject of south-east airports, what are your views on competition between airports in the London market? It looks like we will still have all three main London airports being regulated. Do you think that is a sensible position or do you think Gatwick could be left to run its own affairs?

Paul Simmons: We believe that the airports still have a dominant market power and that, therefore, regulation is the right way forward. It is a system which has worked and we believe it should continue to work in terms of the benefit of the customer overall.

Q566Nigel Mills: Any plans for a Belfast-East Midlands route?

Paul Simmons: Shall I break it to you gently? No, we haven’t. We see the Birmingham initiative as serving that market, although I appreciate it is slightly different.

Q567Chair: Have you any views on the rail links and connectivity in Northern Ireland between airports?

Paul Simmons: Clearly, we would like the ground links to be improved. I think, realistically, probably working on arterial roads is the main way forward, particularly thinking about Aldergrove. If we could get that through it would deliver a great improvement to the travelling public. That would offer some improvement there, but we are not particularly pushing for rail.

Q568Ian Paisley: Not pushing for rail?

Paul Simmons: I think only on the basis that we are trying to be realistic in terms of what is likely to be forthcoming.

Q569Lady Hermon: If I understood correctly, while you are saying that, in the present economic climate, it is not sensible to talk about a rail link, what you really would like to see is some improvement in the road connections, certainly through the Templepatrick bit.

Paul Simmons: Yes, particularly that bit. In the medium-to-long term, clearly rail links would make sense for a major international airport but, in sequencing them, I think the road infrastructure could be best upgraded first.

Q570Lady Hermon: Could I just ask: we have understood that you do not particularly have easy access to meetings with the Chancellor himself, though with some Treasury officials. In Northern Ireland, with the Devolved Assembly, do you have easy access to Ministers-to the First Minister, to the Minister, Arlene Foster, at Stormont, about trade?

Paul Simmons: We do. We have extremely good access, actually. I have met the First Minister myself, as have my colleagues, and the other Ministers too. Having access to Stormont politicians is not a problem for us.

Q571Lady Hermon: Has it been a benefit?

Paul Simmons: I think it has been a benefit because we are the largest carrier and we are extremely proud to be the largest carrier and just explaining our position and also taking any feedback from the other side is extremely positive, so we value those connections.

Q572Lady Hermon: I am just curious, and the reason I ask is, in fact, before the summer, when we took evidence from Arlene Foster as the Minister for DETI, and also from the Regional Development Minister Danny Kennedy, we did specifically ask at that stage if there were any plans for the rail connection, and that was ruled out. But there was not much warmth shown towards the suggestion from the Committee that there should be an upgrade in the road link between the international airport and Belfast City.

Paul Simmons: We do not always agree on everything or have exactly the same set of priorities, but we have very good relationships.

Q573Lady Hermon: So, it is ongoing lobbying that you are conducting.

Paul Simmons: It is not just lobbying; it is dialogue, and it can come from either side. But we do have very frequent and regular meetings.

Lady Hermon: That is very encouraging.

Chair: That was very useful. Thank you very much for your evidence.

Prepared 18th September 2012