Future of aviation (HC 499-i) Transport Committee 6 May 2009

Q6 Mr. David Clelland: The Aviation White Paper encouraged the development of long-haul services from regional airports. Is there any evidence that this has worked at all and has it relieved the pressure on Heathrow?

Dr Bush: There is some evidence that it has worked up to a point. There have been services put in at some regional airports, but actually it is at the margin of, if you like, the Heathrow issue because there have not been enough particularly to relieve the pressure at Heathrow. One of the problems you have is that you need a fairly thick base of population and traffic to justify a long-haul service, so it is only really to somewhere like the States or the Emirates, which I think put on a flight to Dubai from Newcastle and therefore enabled people from Newcastle to connect to points east of that. So it is a valuable contribution, but it is not going to really ease the pressure in the short term or even the medium term on Heathrow.

Mr Murphy: I think that is right. There are only two long-haul carriers which are of any significance in terms of regional growth and taking a bit of pressure off Heathrow, Continental to Europe and Emirates to Dubai. It is just possible you may get some like Etihad putting up a bit of competition for Emirates as well, but those really are the two airlines which have diversified into Glasgow, Edinburgh, Newcastle, Manchester and Birmingham. They are the services which have taken a bit of pressure off Heathrow. It is pretty marginal.

Mr Mans: I think in a way the White Paper is right, we are getting more regional long-haul services, but they are from foreign airlines and in a sense you would expect that because if your base is in the UK and it is around Heathrow you are probably going to focus on that, whereas if you are a foreign airline wanting to get to some of the regional centres in the UK that is more attractive for you in the point to point operation. I think the other thing we are probably going to see is a number of mega-hubs across the world, of which Dubai is clearly going to be one where, when they have built the new airport, will have a total of six runways and the ability to handle 122 million passengers together with an existing airport which has got another two runways. You can see the size of that particular mega-hub, so I can see more flights to regional centres right across Europe, including the UK, from somewhere like Dubai.

Q7 Mr. David Clelland: If Heathrow is the only viable UK hub airport, should regional services to Heathrow be protected?

Mr Murphy: I think they have gone already mostly. I think this is the really critical issue for the future, if Heathrow is no longer performing for the UK economy and the regional economies in the way it should be, and the reason for that is quite simply that runway capacity is so scarce and the value of slots is so high that regional services just do not make sense compared with the opportunity cost of a slot, or two slots - you need one to get in and one to get out - so you will see more services to the US. What has happened in the last two years is that US carriers have moved from Gatwick into Heathrow. Lufthansa have started their long-term ambition of getting Berlin services. They fly to Milan with Lufthansa Italia. There are now four airlines flying to Lagos, which is of virtually no value to the regions whatsoever, but the regional services are progressively being squeezed out.

Q8 Chairman: The question is, should those services be protected?

Mr Mans: The way I would answer that is that I think you would have to re-impose the traffic distribution rules in order to re-create those regional services in the UK. As you know, the last Conservative Government got rid of them. The present Labour Government has not reintroduced them, but I think unless you do that inevitably airlines, as my colleague Vernon has said, are going to pick the routes which have got the highest load factors on them and the most profit.

Q9 Mr. David Clelland: How would a third runway affect the situation? How will that affect UK airports and the regional services?

Mr Murphy: A third runway may solve the problem. Of course, the difficulty at the moment is that there is very little point to point traffic from any of the English airports into Heathrow because Wales basically becomes dominant. Manchester Airport, for instance, its service to Heathrow in 2004 was 1.4 million passengers. Last year, 2008, it was down to 910,000. This year it will be even less, and it is not transfer traffic which has gone, it is the point to point traffic. It is the confidence in rail, and particularly the frequency. The frequency on London to regional services is absolutely fundamental to competing with air. It is not about high speed, it is about frequency and reliability. The same is true of Edinburgh and the same is true of Glasgow. From 2004 onwards there is a drop between 25 and 30% of passenger numbers on those domestic services into Heathrow. Now, if you then had a third runway you could get the sort of regional express commuter service you see in the States, which are primarily about the transfer of passengers, because what Heathrow should be doing for the regions is to give them the opportunity to get to the rest of the world. You will never get services to most of the destinations from Heathrow from a regional destination because there just is not the volume.

Dr Bush: I just differ slightly on this because I do not think a new runway at Heathrow would entirely solve the problem. It clearly will create more space for regional services, but you have to remember that on the Government's formulation there will be a relatively limited initial increase in capacity, and also the important thing about a new runway is that it will create a little bit of space to enable a reduction in delays and better resilience at Heathrow. So there is a number of things which Heathrow's third runway has got to do and one of them is to hopefully increase the commercial opportunities for the regions, but there is a number of other things against a relatively limited growth and capacity given the environmental constraints that there will be.

Q10 Mr. David Clelland: Do we still need a second runway at Stansted?

Dr Bush: I think what has happened on the Stansted case is that over time from the Government's position, where it was 2011/2012, I think the commercial realities are pushing it to the right. The Competition Commission did a report for us in relation to Stansted price control which talked about 2017 really being the earliest date at which it would be required and it might be a bit later than that.

Q11 Mr. David Clelland: What about the effect of the new ownership of Stansted and Gatwick as well as either Glasgow or Edinburgh, depending on which one it is? Will it lead to better services for passengers?

Dr Bush: I think it will. I think any degree of competition like that will lead to better services and better sharpness in the airports in looking both to passengers and how they service airlines better. For instance, if you look at Gatwick now, the way in which that airport has been transformed really from being basically a BAA-led airport to one which now is offering a whole range of different services, even under common ownership. I think you will get much more of that differentiation of product between the airports trying to attract different sorts of custom. I think the same will be true in Scotland.

Mr Murphy: There does seem to be a hierarchy developing. I am not sure whether Harry will agree with me, but no airline has ever moved a service from Heathrow to Stansted, for example. The move is Gatwick's airlines want to get into Heathrow and then Stansted has been losing easyJet services in particular to Gatwick. This is all about yield. The yield is better out of Gatwick than Stansted. So as capacity becomes spare in Gatwick with airlines moving into Heathrow, so there has been some move across to Gatwick and that has actually deferred the need for a second runway at Stansted.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.