1. The Future of Air Transport in the UK Scene-setting Laurie Price Regional Economic Development and Air Access to Heathrow and Gatwick; Seminar May 4 th 2004

2. Agenda  The Aviation White Paper on the Future of Air Transport in the UK laid out a general approach for the next 30 years, to general approval BUT:  Three major problems still have to be resolved: – Access to London’s hub airports from the regions – Slot scarcity and slot allocation regulations – The use of Public Service Obligations (PSOs)

3. Total Terminal Passengers at UK Airports 1972 - 2003 1974 Fuel Crisis 1977 Bermuda II 1979 US Deregulation 1981 Fuel Crisis + Recession 1982 Falklands War 1983 Europe Deregulation 1991 Gulf War 1995 Introduction of Low-Cost Airlines Source: CAA Airport Statistics 1985/86 Libya/Chernobyl 1988 Lockerbie 2001 Terrorist Attacks

4. DfT Forecast of UK Terminal Passengers 2000- 2030 Source: CAA; DfT Forecast for RASCO/SERAS 3.45% p.a. 3.20% p.a. 3.90% p.a. 6.15% p.a. 5.65% p.a. 7.20% p.a.

5. Propensity to Fly by UK Region

6. The problems Regional Services  A key issue for the UK air transport industry and regional economies is the access for regional air services to London’s hub airports of Heathrow and Gatwick  Many regions have already lost their scheduled service links with Heathrow and Gatwick, while the remainder are at increasing risk  In a free market, a good big’un will always beat a good littl’un: Heathrow – Leeds will never be able to compete with Heathrow – Chicago for scarce slots

7. Regional air services to London are under threat INV ABZ DND GLA EDI NCL CAX BFS BHD IOM MME LBA LPL HUY MAN EMA BHX NWI PLH EXT NQY GCI JER Routes operated Summer 2003 LHR and LGW services LHR service only (Services MOST at risk) LGW service only No service to LHR or LGW (but operated in 1986) Regional services lost 1986-2003 LGW 7 LHR11 *Note: All these Regional Airports operated services to LHR and/or LGW in 1986 Source: OAG

8. The problems Slots and slot allocation priorities  Heathrow and Gatwick are full today – there are no spare slots  Slots are changing hands at Heathrow for up to £10m a pair, and the price will continue to soar  In a free market, small aircraft travelling short distances will not be able to compete in the long-term without some form of government protection  The EU is preparing to modify slot allocation legislation, but don’t hold your breath  Slot shortages are a direct result of insufficient runways in the South East – and we can see no extra runway for at least 10 years

9. Heathrow Summer 2001 Demand DEPARTURE MOVEMENTS (Typical week - all times local time) Source: ACL 2001

10. The problems Public Service Obligations (PSOs)  These are used throughout Europe to provide air links to peripheral regions that might otherwise not be provided  Normally, this involves the provision of some level of public subsidy, but it ain’t necessarily so  PSOs can also be used to requisition scarce slots at congested airports to protect links from peripheral regions, without any financial subsidy  The DfT is to hold a consultation on PSOs to see if they can help to solve some intractable problems of access  It is hoped we can discuss some of these today…

11. Heathrow and Gatwick – the only true London hub airports Aug. 2003 SchedulesHeathrowGatwickStanstedLuton London City Total Destinations served Full Fare - Low Cost - 168 0 126 123 15 100 24 84 28 11 19 20 0 Total Weekly Departures Full Fare - Low Cost - 4,506 0 1,804 1,550 254 1,572 235 1,337 502 60 442 445 439 6 Long Haul Destinations USA - 1416000 Long Haul Destinations Other - 7723000 Passengers (Year 2002 – millions) 63.129.516.16.51.6 ATMs (Year 2002 – thousands) 4612351555854 Source: OAG

12. Public Service Obligations (PSOs) According to the White Paper, “The Government will apply PSOs where, in accordance with the existing EU Regulation 2408/92, three criteria are met:  The route is to a peripheral region, or to a development region, or is a ‘thin’ route;  The air service concerned is vital to economic development for the region; and  A PSO is required to ensure an adequate level of service.” Source: The Aviation White Paper, Dec. 2003

13. The Government’s PSO Pledge “ We propose that, where there is an existing service, PSOs would be imposed only when an airline’s withdrawal from a currently operated route would reduce the frequency level below an adequate level. In judging whether there was an adequate service, we would take into account the frequency of services, the timing of the services, and the seat capacity offered.” Source: The Aviation White Paper, Dec. 2003

14. Implications  Unless we can rapidly offer additional runways in the South East and/or modify the DfT’s application of PSO policy to peripheral routes to and from Heathrow and Gatwick, regional economies will remain at risk  Airlines and airports favour the status quo – larger aircraft and longer routes spell greater profits. They do not have to consider the wider economic benefits that domestic air services to London may bring to the regions  The pressure for change must be applied by the regions

15. Air Transport White Paper – Summary of recommendations for the South East  1 new runway at Stansted - 2011/12 – although this felt to be an optimistic timescale  1 new runway at Heathrow (if environmental conditions are met) – 2015-2020  Land for extra runway at Gatwick to be safeguarded in case no runway allowed at Heathrow, but no development before 2019  Luton encouraged to lengthen its runway and maximise its number of movements as soon as possible

16. Stansted

17. Heathrow

18. Air Transport White Paper – Summary of recommendations for the Regions  A new runway at Birmingham  Terminal expansion at Manchester and Cardiff  Runway extensions for Bristol, Liverpool and Newcastle  East Midlands granted permission to expand, but with strict night noise controls  Land safeguarded at Edinburgh for new runway and terminal  Land safeguarded at Glasgow for additional terminal capacity  Development encouraged at Prestwick, Aberdeen, Dundee and Inverness

19. These developments must be consistent with the Government’s environmental objectives The Government has proposed a framework of local controls to manage the environmental impact of aviation and airport development so that:  Noise impacts are limited, and where possible reduced over time  Local air quality is maintained within legal limits across all relevant pollutants…  Loss of landscape and built heritage is avoided wherever possible, and otherwise minimised and mitigated to the greatest extent possible  All relevant water quality and other mandatory environmental standards are met  Surface access to airports is designed to help limit local environmental impacts  Impacts on biodiversity, such as disturbance of habitats and species, are minimised. Source: Aviation White Paper, Dec. 2003

20. The Compromises needed  More runways in the South east, but less impact on the environment  More links from the regions to London, but no reduction of the necessary intercontinental flights from Heathrow  More development of regional economies, but not at the expense of London and the South East

21. Summary  A political challenge for both local government and national government to achieve the best results for the whole nation