The House Of Commons Transport Commitee Concludes the "Future of Aviation" Enquiry

 In Todays Issue:

• - The Bullet
• - Summary of the Key Findings
• - Carbon Emissions: A Damning Indictment 
• - The “Open Skies”?
• - TWC’s Take on the Report
• - Who says politics can’t be funny

The Bullet

 This morning, The U.K House Of Commons Transport Committee published its initial findings to the Government on their enquiry “The Future of Aviation”.   The enquiry began in late February of this year with a broad scope to elicit information from the public, the industry, and other interested parties on the Future of UK Aviation.

Louise Elleman MP is a long standing member of the Transport Commitee, and was elected its Chairman in May 2008

Committee Chairman Louise Elleman MP, said in a statement, “Aviation is an important part of the UK economy, both in the south east of England, and in the regions.”

The Committee goes on to say that the Government’s long term basis of Aviation Policy- a 2003 white paper- “continues to provide a sound basis for aviation policy but warns the Government that it must update its assessment of the economic value of aviation for the UK economy regularly to ensure its figures are subject to independent external scrutiny.”

Carter Stewart, Managing Director of TWC Aviation, a London-based Aviation Consultancy agrees.  “We believe that the overall net economic contribution of aviation to the U.K. has been under-valued by the Government by as much as £800M GPB annually”

The Key Findings of the Report:  Overall Good News for the Industry

In summary the statement from The Committee makes the following additional recommendations:

The report supports Heathrow Expansion, but calls into question further expansion of Stansted in favour of Gatwick

The Committee supports the Labour Government’s London Heathrow expansion proposal; but calls into question the Stansted expansion and instead suggests London Gatwick may be more appropriate.

While The Committee “recognises the importance of Air Passenger Duty (APD)” it suggests that the Government needs to be “mindful of the vulnerability of the aviation industry in the current economic climate.”

Carbon Emissions: A Damning Indictment of the EU – Sane Words to the Industry

The report could not be complete without also addressing the issue of Carbon Emissions and noise pollution.  The Commitee says in their report  that aviation should not be “demonised or assigned symbolic value beyond its true impacts.”  It went on to comment that they had concerns that “The EU Emissions Trading Scheme has an appaling track record and may prove insufficient to to drive investment into low carbon aviation”

Regarding Carbon Emissions, the report sets forth a “number of principles that should be applied in this area.”  It also refers us to the publication of the UK Climate Change report that is due to be published on Tuesday, 08 December.    They also called on industry to “sensibly reduce its greenhouse gas emissions over the coming decades.”

The “Open Skies?”

“Discussions to extend the Open Skies agreement are ongoing between the European Commission and the US Federal Aviation Administration. This might allow further access to EU and US markets. The asymmetric nature of the Open Skies agreement is disadvantageous to the UK economy and particularly to the UK regions, and should be renegotiated at the earliest possible opportunity.”, the report says.

The report also reiterates MPs previous calls for the ATOL levy to be increased and extended to include all international flights.  Currently, ATOL is only applied on package holidays from the U.K.  

It also asks The Government to clarify the “basis of its claim that an additional £10 bn could be raised if VAT and Fuel duty were applied to Aviation.”

The key conclusion is clear.  ”We beleive that the aviation industry is a very important to the UK Economy.  Therefore we find it unsatifatory that the Government leaves such a key industry to the vagaries of the market.”  

Our Take of the Reports Findings

“Overall we believe that the report is a good news story for both the industry and consumers,”, Stewart says.   “At this critical economic time for our country the aviation industry, and airline consumers, have been suffering at the hands of the taxman disproportionately to other industries.”

“In a recent speech to The UK Aviation Club in September, The Lord Adonis defended the recent APD increase by saying it was ‘a matter of published policy’ and as a result ‘it would not be changed.’  I am glad to see members of the Transport Committee are calling into question the potentially damaging effect this policy has on UK airlines and airports to compete with other European rivals.” 

“One of the most telling items from our perspective is the language used around the US Open Skies agreement.”, says Carter Stewart.   ”With talks between the US and Japan about to start today this is not the ideal moment for a key U.S. shortfall to come into such scrutiny.  We agree that US liberalisation promises have failed to truly materialise for the UK, and promises about foreign ownership are key”

“With US carriers vying for ownership and control deals with JAL, I simply hope that the Japanese keep in mind the key points of reciprocity in their agreement and have clear understanding and timetables from the outset.”, Stewart says. 

“It is also refreshing to see MPs pushing back on behalf of the industry and consumers by demanding clearer answers on proposed estimates on tax revenue from VAT on tickets and fuel levies”, Stewart says.

Todd Koonce, Manager of Technical Operations at TWC Aviation believes that the report does hit some of the right notes about aircraft technology.  “It is obviously to everyone’s benefit to phase in more efficient aircraft as soon as is financially and operationally viable.  The key issue for many carriers has been the delivery delays of these very aircraft, like the 787 and A380, from the manufacturers themselves.

“I also believe that for short-haul segments, the efficiencies of turbo-prop aircraft have been overlooked by the airlines.    There is also a public perception that regional jets are somehow safer, and more comfortable, when there is an argument to be made that latest generation of turboprops could offer lower emissions and better operating margins.”

 Proof Positive of Humour in Politics

For those of your interested in the initial white-paper, here is a little bit of the background and history.

In 2003 Alistair Darling was then Secretary of State for Transport and presented the intial "Future of Air Transport"

H.M. Government has for some time used a white paper entitled “The Future of Air Transport”, published in 2003, as the basis of U.K. Government Aviation policy.  Ironically, it was then Alistair Darling, then Minister of State for Transport (and now current Chancellor of the Exchequer) who introduced the reports findings to the House of Commons on 23 of July 2002.   Even at that time, then Minster Darling was making a case that the U.K. needed to keep pace with capacity demands, and understood the importance of our air gateways which needed to compete with the increase in market share by Continental European airports.  

 What a difference a few years, and a change to Chancellor can make.

 (A full text of his statement to the House in 2003 can be found here, at the 1530 time marker.

THE ISSUE – A FAILED BID FOR ANTITRUST IMMUNITY

In 2002, American Airlines (AA) and British Airways (BA) filed for antitrust immunity. Had their request been approved, they would have been free to work together to set more competitive flight schedules and fares. Unfortunately for the two airlines, no agreement has yet been reached with the US and EU regulatory authorities.

The question is: are consumers losing out as a result?

THE BACKGROUND – A LOT HAS CHANGED SINCE 2002

Back in 2002, the landscape of the EU-US airline market was very different. New entrants to the market were prohibited, and AA and BA practically had a monopoly hold on daily departures between London Heathrow and the US.

The new EU-US Open Skies accord has changed all that. Since the first phase of this agreement was reached in 2007, the doors have been opened for new market entrants to fundamentally change the competitive landscape at Heathrow and other European airports. Airlines such as Air France, Delta, US Airways and Northwest have begun to challenge established Heathrow-US carriers: an example of the healthy competition that comes from open markets.

ARGUMENTS FOR – MORE CHOICE FOR CONSUMERS

Ultimately, passengers now have a wider choice of carriers, service levels and new non-stop destinations than ever before. 

Plus, there is now a serious potential contender in the London-US market. Heathrow’s second largest airline BMI has been raising its profile to business travellers over the past few months, while Lufthansa has recently increased its stake in the airline.  So, could direct links to the US be far off for BMI, giving consumers even more choice when it comes to transatlantic flights?

Notably, both BMI and Lufthansa are members of the Star Alliance, which already operates with antitrust immunity and as a result is growing stronger and more competitive by the day. In all this, the consumer is once again the winner.

ARGUMENTS AGAINST – THE IMPACT ON GATWICK AND COULD BA/AA ‘MONOPOLY’ INFLATE FARES?

The past few years have seen other London airports such as Stansted and Luton experiment with transatlantic links – with mixed results. And in the wake of Open Skies, a near ‘mass Exodus’ of carriers shifting their operations to Heathrow has led to radical changes at Gatwick. These changes could, in fact, continue – but in new direction. If Virgin Atlantic wins its bid to buy the airport from the British Aviation Authority, it could potentially shift consumer preference away from Heathrow with a superior airport experience.

Unsurprisingly, it is competitors such as Virgin Atlantic that most strongly oppose the BA/AA bid for antitrust immunity. Along with several consumer groups, Virgin Atlantic claims that the result would be a ‘stranglehold’ on Heathrow-US services,  which would enable BA and AA to coordinate schedules enough to inflate demand and therefore fares.

OUR CONCLUSION – AA/BA ANTITRUST IMMUNITY MAKES SENSE

While antitrust immunity could arguably have some impact on frequency and schedules as BA and AA coordinate their services, consumer demand and pressure from new competitors will help keep fares in check. Most importantly, it will give passengers an alternative choice of carriers on a scale not previously available.

So, overall, we feel there is no cogent argument for opposing the AA/BA request for antitrust immunity: a request that has been granted to many other alliances in Europe and the US. Its approval can only help to level the playing field between airline alliances, increase competitive pressures – and ultimately benefit consumers.

It is therefore in all our interests to urge lawmakers to approve the BA/AA application sooner rather than later.