Written evidence from Flybe (TIC 073)

1. Introduction

1.1 Flybe is Europe’s largest regional airline and the UK’s number one domestic airline. Employing more than 2,500 staff, the Flybe brand currently operates 190 routes from a total of 112 departure points, 34 UK and 78 European airports in 23 countries and carried more than 7 million passengers in 2012.

1.2 Included within the Flybe brand is our franchise partner, Loganair, who serve the geographically isolated communities of the Highlands and Islands. Loganair operate their aircraft in Flybe livery and fly 27 routes from 11 airports, with four of its intra-UK routes covered by Public Service Obligation (PSO) agreements.

1.3 While the call for evidence focusses solely on bus, rail and car, Flybe believes there is an important role for aviation in providing reliable and frequent transport services for isolated communities. This response aims to briefly outline the importance of air services for those communities and is something on which we would be happy to provide oral evidence should the committee think it would be helpful.

2. Public Sector Funding for Aviation and Maintaining Connectivity for the Regions

2.1 Aviation, in contrast to most other forms of public transport, pays its own way and in terms of infrastructure investment – both by airports and airlines – the industry receives little or no public subsidy.

2.2 We welcome the government’s announcement establishing the Regional Air Connectivity fund, but the £10million being set aside to support to ensure that regions outside the High Speed Rail 2 network will benefit from stronger transport links is small beer compared to the public subsidy given to rail and bus.

2.3 We support the government’s commitment to re-balancing the economy away from the south-east and believe that greater support for regional aviation can be an important tool in that rebalancing. Flybe has commissioned a study from Oxford Economics to explore the impact of regional aviation and connectivity on GDP, the relationship between regional aviation and growth, inward investment, business supply-chains, tourism and employment. The report will be ready in the autumn and we trust will help inform the debate.

2.4 A measure of how the regions – not only ‘isolated’ communities – have lost connectivity over the years is best exemplified by the statistics relating to access to London Heathrow airport. Only six UK cities (Aberdeen, Belfast, Edinburgh, Glasgow, Manchester and Newcastle) currently have access to Heathrow, compared to some 20 airports (including the likes of Inverness, Newquay, Plymouth and Humberside) that had such access in 1990.

2.5 We fear that within two years London Gatwick will have gone the same way, given the CAA’s failure to uphold Flybe’s complaint against London Gatwick’s owners following price rises of 102% over a five year period. Despite the plainly unreasonable and discriminatory nature of such rises, the CAA concluded that Gatwick’s objective in restructuring its charges to ‘increase the efficient use of its single runway’ was justifiable.

2.6 The challenges that isolated communities face as a result are even greater, given the need for two and sometimes three flights to reach an international destination. Airlines like ourselves try to assist our passengers wherever possible by operating direct routes to international hubs, such as Exeter to Paris CDG or Inverness to Amsterdam. This enables them to access global airports and negates the need for hours spent on the road driving to say London Heathrow or Birmingham. More direct routes could be introduced were the funding available.

2.7 Another alternative Flybe has developed is the Manchester hub. Introduced in March 2012, we created a regional network hub by optimising scheduling options through Manchester airport, meaning that Flybe passengers instantly benefitted from an additional 86 regional point-to-point connections. By working with Manchester Airport to streamline connectivity and reduce minimum connecting times to as little as 35 minutes, Flybe significantly added to the choice of our domestic flights, giving passengers an affordable choice of multiple day returns throughout the UK. While the hub can never be, and does not seek to be, a rival to Heathrow, it has created a long-haul alternative to for the UK’s regional communities, allowing them to access flight connections to the rest of the world offered from Manchester Airport.

3. Air Passenger Duty

3.1 Air Passenger Duty is a barrier to economic growth. It is well documented that the UK has the highest aviation tax in the world – a seriously short-sighted policy for an island nation. Indeed, the government themselves have explicitly acknowledged that APD constrains demand, evidenced by their decision in 2011 to approve a reduction in Continental’s APD from Belfast International to Newark in order to retain the service.

3.2 As can be seen from the table below, the numbers of UK domestic air passengers has fallen by more than a fifth since 2007-08. While this drop has been in part the product of the recession and continuing economic challenges, the fact that APD for a domestic flight was £5 per passenger per flight in 2007-08 and is now £13 per passenger per flight has undoubtedly had an impact.

3.3 Flybe commissioned an economic analysis by Oxera examining the regional impact of APD in 2011. The study showed, amongst many other conclusions, that a reduction in APD for the regions, but not London, would have relatively little impact on London itself - mainly because the proportionate impact on regional airports of a small percentage of passengers switching from London is quite substantial for those regional airports. We would be happy to share the full report with the Committee.

3.4 We argued strongly in our response to the Treasury’s 2011 consultation that any reform of the banding structure of APD must remove the inherent unfairness that means UK domestic passengers pay the tax on both legs of their journey, while those flying abroad pay just once.  The fact that, for example, a return passenger travelling between Glasgow and Belfast City (208 miles) pays double the tax that someone flying between Glasgow and Dalaman in Eastern Turkey does (4,086 miles) is inequitable.
 

3.5 Although the government decided against such an amendment, Flybe still believes that this ‘double hit’ must be addressed in order to safeguard UK domestic aviation and UK regional economic competitiveness. The practical effect of APD on a predominantly domestic operator like Flybe was that, during 2012-13, the airline paid some £70 million in APD to the Treasury, some 18% of our UK ticket revenue.

3.6 APD is, of course, not the only barrier to growth for the industry – excessively high airport landing charges, the recession and the stubbornly high cost of fuel all make for a challenging environment – but it is something that impacts more heavily on UK airlines than their European counterparts. As the biggest airline at Inverness airport, Flybe and its passengers clearly benefit from the current exemption on APD. However, it seems only reasonable that the impact on other transport isolated areas of the UK, for example Northern Ireland and Cornwall are afforded similar exemptions and we would encourage the Committee to bear this, and the other points outlined above, in mind during its deliberations.

September 2013