Written evidence submitted by the Airport Operators Association

Airport Operators Association response: Promoting Britain abroad

1. Introduction

1.1.   This response is submitted on behalf of the Airport Operators Association (AOA), the trade association representing the interests of over 40 UK airports.

1.2.   The AOA welcomes the opportunity to respond to the Digital, Culture, Media & Sport Committee’s inquiry into promoting Britain abroad. It is timely for this inquiry to be held, in light of the devastating impacts of Covid-19 on the UK’s inbound tourism industry and aviation. In the AOA Recovery Plan,[1] published in February 2021, we urged the UK Government to look closely at several opportunities for promoting the recovery of aviation connectivity, which is a vital precondition of a thriving inbound tourism sector. These remain current, as little progress has been made in an aviation or tourism recovery.

1.3.   The AOA’s response will look at the role aviation plays in inbound tourism, what the UK and devolved governments, VisitBritain and others can do to promote route development as well as what policies could encourage visitors to the UK and ensure the UK remains competitive in the international tourism market.

2. The role of airports and aviation in inbound tourism

2.1.   Airports are engines of growth. Pre-pandemic, aviation as a whole contributed more than £92bn to the UK economy, supported more than a million jobs and provided more than £8 billion in tax revenues to the Exchequer.[2]

2.2.   Promoting Britain abroad is both for leisure and business visits. Businesses use travel to connect to customers, travel to trade fairs and service their products abroad. In 2019, 10% of UK residents travelling abroad did so for business.[3] On the inbound side, 21% of visits to the UK by people from other countries were for business purposes (account for 20% of visitor spending in the UK, around £5.7bn).[4]

2.3.   Leisure tourism businesses rely on aviation, with around 75% of visitors to the UK travelling by air.[5] As a result, aviation supports more than half a million jobs in the tourism and travel industry.[6] For example, prior to easyJet’s route between Edinburgh and Hamburg, travelling there was inconvenient as people had to go via a hub airport. Following easyJet’s introduction of that route, travel between the Hamburg area and Scotland increased tenfold. 80% of that travel was Germans coming to Scotland.[7]

2.4.   Many UK airports are actively engaged in the promotion of their regions to overseas markets, including partnership with, funding of, or membership of Destination Management Organisations (DMOs). Some airports carry out inbound marketing of their own, such as Newcastle Airport, which has created the www.visitnortheastengland.com brand to promote its region in countries such as Ireland, France, Germany, Spain, UAE and Australia.

2.5.   However, this once booming sector has suffered its worst crisis in aviation’s history due to Covid-19. Between April-Dec 2020, passenger numbers were down nearly 90% year-on-year. This has had some major economic impacts:

2.5.1. Economic output for the air transport sector between Feb -Dec 2020 reduced by 89%.[8]

2.5.2. On 31 July 2021, 51% of staff in the air transport sector were still on furlough.[9]

2.5.3. Research by business consultancy Steer for the AOA shows that by 2025, between £32 billion and £95 billion of industry GVA is projected to have been lost relative to 2019.[10]

3. Re-establishing the UK as a international travel destination

3.1.   The UK Government wants to create a ‘Global Britain’ – this does and should include bringing more visitors to the UK. The quality of our aviation connectivity is vital to deliver that. There is an opportunity to ensure that aviation builds back better and enables a global Britain through an improved air connectivity network compared to 2019 but not at 2019 emission levels. This would build on the UK’s existing aviation and aerospace strengths, creating green aviation and tourism jobs and expertise that the UK could then export.

3.2.   Air connectivity is vital for an open economy like the UK’s and for its tourism industry (both business and leisure). For example, countries with better connectivity tend to trade more - 1% better air cargo connectivity is associated with 6% more trade.[11] Furthermore, studies have shown that geographic distance limits the transfer of knowledge: “knowledge diffuses by spreading locally first and then across longer distances. It is the more skilled and mobile individuals (e.g. business travellers) who carry knowledge and disseminate it through their social and work networks”.[12] Good direct connectivity helps bridge that geographic distance with reduced travel times and this is one of the reasons why direct connectivity is valued more than indirect connectivity, by both business and leisure travellers. This is born out in practice: the example above of the Hamburg-Edinburgh route showed that a direct route can generate a significant increase in travel vs an indirect route.

3.3.   Pre-pandemic, the UK had some excellent direct connectivity, predominantly within the EU and on the transatlantic route, while we relied on indirect connectivity through European hubs for connectivity markets in areas like Latin-America and Asia-Pacific. However, according to ACI EUROPE’s annual Air Connectivity Index, the UK direct connectivity growth had stalled in the years pre-pandemic, and it was the only major economy to see direct connectivity decline in 2018 and 2019.[13]

3.3.1. The AOA has responded to the Transport Select Committee’s inquiry into aviation’s recovery, on the measures necessary to re-establish the UK’s air connectivity and ensure that it is fit for purpose.[14] We would recommend the Digital, Culture, Media and Sport Select Committee work closely with the Transport Select Committee on its recommendations to ensure the connectivity that is a precondition for inbound tourism recovers swiftly.
 

3.3.2. Crucial for promoting Britain abroad is instilling confidence in visitors that their travel plans will not be disrupted at short notice due to the pandemic. This is particularly important for long-haul visitors, who may plan their travel many months in advance and could shy away from destinations where they feel there is a higher risk of disruption of travel. That is why the UK and devolved governments should work together to re-establish frictionless travel, including no testing for fully vaccinated passengers, and to ensure there is a plan for variants of concern that keeps international travel open.

3.4.   One area which we would wish to highlight to the Committee is the role of tourism bodies in route development. Airports and airlines come together in regular route development conferences, where airports try and promote their airport and region or country with airlines looking for new opportunities. Airlines will look for the potential commercial opportunities on new routes, based on their assessment of the market potential (an interplay of catchment area of the airport, price sensitivity of consumers, consumer interest in travelling in a particular destination, etc.) but also their cost base. Long-haul routes tend to take longer to reach profitability, and airlines are thus investing in future potential as much as actual current (indirect) travel patterns between two airports.

3.4.1. On the point about cost base, the UK charging the world’s highest Air Passenger Duty (double that of the next-highest in the EU) limits UK airports’ abilities to attract airlines. This is because airlines can reach profitability on a new route more quickly in other countries due to the lower cost bases there as a result of low(er) or no aviation departure taxes.

3.5.   At these Routes Conferences, UK airports have noticed that their competitors from other countries are often backed by representatives of their governments or tourism bodies. Those representatives are showing their full backing to their airports’ marketing efforts but can also help discussions with airlines about routes with commitments for promotional campaigns aimed at the consumer. This could then potentially shorten the time to profitability for a new route. The lack of UK Government presence can undermine UK airports’ abilities to attract new routes.

3.6.   The AOA believes the UK and devolved government should take a similar active role in facilitating airports’ discussions about route development with airlines, closely working with organisations like VisitBritain and relevant DMOs. In this respect, the Scottish Government is more active, though there, too, more could be done to support Scottish airports.

3.6.1. In this context, it is worth noting that some airports have raised that their work with regional tourism bodies can be hindered by the current fragmented system, which is also mentioned in The de Bois Review of DMOs. Airports tend to have catchment areas that cover a wide area, where there may be several smaller and/or larger DMOs. There is an opportunity for the Government to take this aspect of promotion abroad on board as they review how they will implement the recommendations of the review i.e. how a new structure of DMOs or Tourist Boards could further support route development in their area.

4. Ensuring the UK’s global competitiveness as a tourism destination

4.1.   The UK’s attractiveness as a tourism destination is in part dependent on the ease of travel and the in-market opportunities. In this section, we will discuss both the challenges around the UK border and the impact of recent post-Brexit changes to duty-free and VAT-free shopping.

4.2.   The UK border

4.2.1. The ease of travel to a country is dependent on how open and welcoming that country is to visitors. The UK has some distance to go there to ensure the visa-regime and the operation of the border is world-class, in part due to a significant lack of resources and years of under-funding. For more than a decade, the UK border has suffered regularly from overcrowding in airports dues to significant queues. This sends a message to potential travellers about the challenges of reaching the UK. Some significant changes have sought to ease these pressures on the border, such as ePassport Gates. The UK was once a world-leader in rolling out ePassport gates and this has played a vital role in facilitating as much as possible travel volumes. However, other countries have taken significant steps forward and now offer a better border experience and the UK has fallen behind, despite the recent expansion of ePassport gate eligibility to the countries in the Border 5 alliance (Australia, Canada, New Zealand and the United States), Japan, Singapore and South Korea.

4.2.2. The Home Office has, for a number of years now, been working on the Border of the Future, which includes upstreaming border checks with eVisas and Electronic Travel Authorities (ETAs), though what progress has been made is difficult to ascertain. This offers the potential for easing pressures on the border but also facilitating legitimate travel and demonstrating the UK is open for visitors. Checks in this way would ensure that the it is clear prior to arrival at the border who is coming to the UK and enable the necessary clearances or further interventions to take place.

4.2.3. In addition to facilitating the operation of the border, eVisas and ETAs would enable the UK to have a more competitive visa offer to emerging markets, and the flexibility to respond to visitor demand and major events. The requirement to gain a visa in order to enter a country is a significant barrier to international visitors. There would be an opportunity in using ETAs for countries where a visa is required for travel, such as China and India, to facilitate the travel of low-risk visitors (e.g. those with a high net worth, tour groups or those attending a conference) and thus boost visitor numbers. Such potential visitors would be able to apply for an ETA and, if they met certain criteria, they could travel to the UK without the need for a full visa, potentially using an ePassport gate to clear the border at the airport. Those visitors that did not meet the criteria would be declined an ETA but would be invited to apply for a full visa in the normal way.

4.2.4. Based on pre-pandemic figures, even if just 30% of current visitors from China and India qualified for an ETA, this would reduce queues at immigration desks by 350,000 people per annum. It would also save the Government around £17m per annum in visa processing costs and enable UK businesses to attract additional visitors from these countries by marketing ETAs as a “fast-tracking” service. In other words, using ETAs more widely to triage visitors would not only improve the operation of the border but also support both the UK Government’s Tourism Recovery Plan, the ambitions of the Tourism Sector Deal and International Business Events Action Plan, which aims to maintain the UK’s position as a leading European country for hosting business events, conferences and congresses.

4.2.5. In this context, the AOA welcomes the 2025 UK Border Strategy, which contains several important ambitions to improve the operation of the UK border for passengers. However, there are questions around the UK Government’s capacity to deliver these changes in the timescale set out, particularly with the ongoing pressures around the pandemic and senior leadership gaps at Border Force and the Home Office. It is vital that, as part of its efforts to deliver the Strategy, the UK does not create its own, bespoke solutions that have limited interoperability to global systems. For example, there are number of initiatives globally around introducing single-token digital (biometric) travel solutions. When designed right, the whole traveller journey could benefit from these solutions, e.g. from booking through to hotel check-in and car rental but including travel by air and through the border. The UK must ensure that there is potential to integrate UK programmes and solutions with others, examples of which include:

4.2.5.1.        The International Civil Aviation Organisation’s (ICAO) Traveller Identification Programme (TRIP): through the specifications developed for ePassports and the ICAO model developed for the Digital Travel Credential (DTC), this aims to provide the governance basis for identification management, earlier traveller identity validation and controlled distribution to stakeholders on a “need to know” or “authorised to know” basis. ICAO and the International Organization for Standardization (ISO) are currently developing specifications for the DTC model. In turn, the DTC model and corresponding specifications will support industry initiatives such as the IATA’s OneID initiative.

4.2.5.2.        The World Economic Forum’s Known Traveller Digital Identity (KTDI) initiative focuses on leveraging a decentralised, interoperable and secure platform that allows travellers to be stewards of their own identity information, while enabling government officials and law enforcement authorities to request accurate and verified information about travellers far enough in advance to make more efficient decisions about admissibility and security risk.

4.2.5.3.        Airports Council International (ACI) and IATA’s New Experience Travel Technologies (NEXTT) examines opportunities for advanced processing technology and data usage to improve operations and the traveller experience throughout the traveller journey, but this also includes cargo and baggage.

4.2.6. In this context, it is important to note that the digitisation of the checks necessitated by the pandemic have not given industry confidence in the ability of government to deliver a smoother border of the future. The Passenger Locator Form (PLF) is cumbersome and significantly longer than equivalent forms in other countries. There is no integration of the ability to create a PLF account to speed up completion for regular travellers with existing logins within UK Visas & Immigration (EU Settled Status, Citizenship accounts, HM Passport Office applications) let alone wider UK Government (e.g. Gov.UK Verify or Government Gateway). Digitisation of the PLF checks through ePassport Gates has helped, but delays at boarding and the border have continued, in part due to regular failures of the IT systems behind the upgraded border systems. The UK and devolved governments have made clear that the PLF is here to stay, and there is thus a risk that this form becomes a de facto ETA, despite its obvious and continuing flaws.

4.3.   The UK’s offer to visitors

4.3.1. Following the end of the transition period, the UK Government abolished the airside extra-statutory concession for VAT-free shopping and the UK is now the only developed economy without VAT-free shopping airside in its airports. This increased the cost of airside shopping for passengers travelling abroad and undermines UK airport competitiveness, particularly compared to EU airports. At the same time as the UK abolished its offer to UK-departing passengers, the EU extended its VAT-free shopping opportunities for passengers to non-EU destinations to include UK-bound travellers from EU airports.

4.3.2. Following the end of the transition period, the UK Government also abolished the VAT Retail Export Scheme (VAT RES), meaning international visitors are no longer able to make tax-free purchases from UK high streets. The UK is now the only developed economy without a tax-free shopping regime for international visitors. International travellers can be extremely price sensitive and so this increased cost of shopping seriously undermines UK competitiveness as a destination for certain groups and individuals, particularly compared to EU destinations where non-EU residents can continue to benefit from tax-free shopping.

4.3.3. An independent economic assessment for the UK Travel Retail Forum shows the loss of the VAT airside concession alone will cost the UK economy £2.1 billion in GDP and will put 19,400 jobs at risk. This negates the benefits of the extension of duty-free sales on alcohol and tobacco for EU-bound travellers. A new tax-free system at airports, rolled out to all international travellers, would have the reverse impact of the current policy, generating an extra £1.1 billion in Gross Value Add (GVA) and supporting more than 10,000 new jobs, most of them outside London.

4.3.4. With airports expected to have lower aeronautical income, as they will compete fiercely with other airports for the reduced number of aircraft that airlines will be flying post-pandemic, airports will have to seek revenue from other sources to sustaining their financial viability. The abolition of the VAT-free sales airside make this more difficult to do, while at the same time sending out the message to potential visitors that it is cheaper to do your shopping elsewhere in Europe. The AOA believes the UK Government should introduce a new airside VAT-free shopping regime to ensure the UK can compete on a level-playing field internationally on this front.

4.3.5. Post-Brexit, there is an opportunity to increase visitor spending in the UK through the introduction of arrivals duty-free stores. These are already well-established in some other countries, such as Norway and Switzerland. A study by York Aviation for the UK Travel Retail Forum found that arrivals duty-free stores would increase passenger spend by 20-30%, which would benefit regional airports in particular as some of those airports get as much as 40% of their revenue from retail sales. Given that it would be competing for foreign pre-departure shopping, diverting sales from other non-UK airports, this would be a net benefit to UK retail, with all the economic benefits that entails. The AOA believes the UK Government should introduce arrivals duty-free as soon as possible to offer potential UK visitors a competitive advantage compared to other destinations, help support airports as they look to recover lost routes and bring more spending to the UK.