Written evidence from Bristol Airport (SMA0017)

Executive summary

1. Bristol Airport is the major regional airport for the South West of England and South Wales, serving a catchment area with a population of between seven and eight million people within a two hour journey time.

2. Handling 6.3 million passengers during the 12 month period to August 2014, Bristol is the ninth busiest airport in the UK and the fifth busiest outside London.  Planning permission is in place for the development of facilities to handle 10 million passengers per annum (mppa).

3. Although falling just outside the parameters of the inquiry (which focuses on airports handling up to 5 mppa), we welcome the opportunity to provide evidence on the regional airport market in which several of our competitors fall into the size category under consideration.

4. In particular, our submission focuses on competition issues and the potential for market distortion to result from Government intervention at smaller airports.

5. While several airfields in the South West have closed within the last three years, we argue that this has not resulted in a net loss of connectivity for the region, with consolidation of the route network at Bristol Airport providing positive benefits.

6. For this reason, we believe direct intervention in the market to favour one airport over another is unnecessary and counterproductive.  Route development funds have a poor track record of delivery and subsidies are likely to negatively impact neighbouring airports with no net benefit to regional connectivity.

7. Furthermore, the use of arbitrary passenger numbers when applying policy or distributing funding can disadvantage those airports which fall just outside the qualifying criteria.

8. The adoption of similar thresholds by regulators (e.g. the EU Airport Charges Directive, which applies to airports handling over 5 mppa) results in a squeeze on mid-sized airports which are required to meet strict regulatory requirements perhaps better suited to large international hubs while, at the same time, competing with smaller airports able to offer airlines subsidised charges.

9. By maintaining a level playing field for airports of all sizes, Government can ensure regional connectivity is maximized without diluting the economies of scale which enable larger regional airports to invest in enhanced facilities to the benefit of passengers.

Background

10. Bristol Airport is one of the UK’s fastest growing airports, with passenger numbers having trebled since 2000. 

11. Flights are available to over 100 destinations, including 86 scheduled services, with direct routes to 15 international capital cities.

12. Ten scheduled airlines operate services to and from Bristol Airport, including low cost, full service and charter carriers.

13. easyJet serves 46 destinations from Bristol Airport – its largest choice of routes at a UK airport outside London – while Ryanair serves 29 destinations. 

14. Over the last 18 months, bmi regional has established a successful base operating scheduled flights to domestic and European destinations as well as shuttle services to Toulouse and Chester for Airbus.

15. Multiple daily frequencies to international hub airports including Amsterdam, Brussels, Dublin and Frankfurt, provide access to onward connections across the globe.

16. Securing direct links to North America and the Middle East are major objectives for Bristol Airport in the short to medium term.

17. Plans for the development of Bristol Airport to handle up to 10 mppa were approved by North Somerset Council in February 2011.

18. Work is currently underway on the construction of an eastern terminal extension, the latest of more than 30 phased projects which the development comprises.  Other major components include a western terminal extension, a new multi-level car park with a public transport interchange on its top level, and an on-site hotel.

19. Development is concentrated in existing operational areas and is located almost entirely within the current boundary.  A comprehensive package of controls, monitoring and mitigation measures accompanies the development covering noise and night flying, air quality, nature conservation and surface access.

20. The West of England is investing £244m in major transport schemes which will significantly enhance surface access to Bristol Airport, including the MetroBus network which will improve public transport links from the north, east and west.

Regional benefits

21. The connectivity provided by regional airports increases business efficiency through journey time savings, improves access to markets, allows local business to trade over a wider area, helps to attract investment from globally mobile businesses and supports important economic clusters.

22. Airports are also significant employers in the economies in which they operate.  Around 3,000 people are employed at Bristol Airport - the largest employment site in the North Somerset local authority area.

23. It has been estimated that the development of Bristol Airport will deliver total additional income to the South West region of between £1.9 and £2.0 billion and create more than 3,500 new jobs.  Time and cost savings for travellers will total £133 million.

24. Bristol Airport is an increasingly popular gateway for inbound visitors, with 18 per cent of passengers resident overseas, equating to more than one million passengers a year.  In 2012, visitors hailed from a total of 82 different countries.  With domestic visitors included, a quarter of all passengers can be classified as ‘inbound’.

Developments in the market for air travel to and from South West and Wales

25. The South West has lost civil and military runway capacity in the last three years.  Plymouth Airport closed in December 2011, and flight operations at both Filton and RAF Lyneham ceased 12 months later, with all three sites scheduled for redevelopment.  In March 2013, Cardiff Airport was purchased by the Welsh Government amid speculation that the decision was necessary in order to keep the airport open[1].

26. While the loss of these airfields may have some local impacts, we do not believe overall regional connectivity has suffered as a result.  Bristol Airport remains a more convenient alternative to travelling from London airports for passengers from the South West and South Wales.  In fact, market consolidation could be argued to support routes which might otherwise have been marginal or not viable.

27. An example of this effect is the closure of Filton Airfield, which saw Airbus move corporate shuttle services operated by bmi regional to Bristol Airport, providing a catalyst for further growth of the airline’s scheduled route network.

28. Looking further back, the number of international destinations served by direct flights from Bristol Airport has risen from just five in 2000 to 76 today.  Analysis of data from the CAA Passenger Survey in 2008 and again in 2012 indicates that Bristol Airport’s market share in its secondary catchment area increased over this period.

29. For example, 35 per cent of passengers with an origin or destination in Devon used Bristol Airport in 2012 – up from 23 per cent in 2008.  Similar increases in penetration have been identified in South Wales, Wiltshire and Gloucestershire, suggesting that passengers previously using smaller regional airports have migrated to Bristol Airport over this period.  This consolidation of traffic at larger regional airports results in less route duplication, more efficient use of infrastructure, and better facilities, surface access and public transport.

30. Consideration of the routes served by two regional airports competing in overlapping catchment areas, Bristol and Cardiff, illustrates this point.  Analysis of respective route networks in February 2014 showed 37 destinations served from both airports, accounting for 79 per cent of the total served from Cardiff.  This suggests that overall regional connectivity may not be threatened by declining passenger numbers at smaller airports as the majority of routes will remain served from within the wider region.  In fact, the critical mass created at larger regional airports can help to support net increases in regional connectivity – as seen in the Filton example.

Competition issues

31. Airports in the South West face significant competition from outside the region.  Analysis of data from the CAA Passenger Survey indicates that 6.3m passengers travelling to or from the South West and South Wales used an airport in the South East of England in 2012 – the largest leakage from one UK region to another, and equivalent to the total annual throughput of Bristol Airport.

32. As well as competing for passengers with airports in other regions, Bristol shares overlapping catchment areas with Cardiff (under 100km away), Exeter (106km) and Newquay (240km) – all of which are significantly smaller in terms of passenger volumes and destinations served. 

33. The intensely competitive environment in which regional airports operate is particularly apparent when considering the potential impact of devolution of Air Passenger Duty (APD) to devolved administrations in Scotland and Wales.  The HMRC report, ‘Modelling the Effects of Price Differentials at UK Airports’[2], published in October 2012, concluded that Bristol Airport would see a 25 per cent reduction in passengers in 2020, with a corresponding five-fold increase in passengers at Cardiff Airport in the event of devolution of APD to Wales and its subsequent zero-rating. 

34. Such an artificial redistribution of traffic from one airport to another would be entirely inconsistent with the open and competitive aviation market that exists in the UK.

35. Similar market distortion would result from state aid to airports by devolved administrations, something which is a particular concern following the purchase of Cardiff and Prestwick airports by the Welsh and Scottish Governments respectively.  There is a danger that if airlines are offered terms which are commercially unsustainable by publicly owned airports in order to attract headline-grabbing new services then the ability of privately owned airports to cover their costs will be compromised.

36. It should also be noted that airports compete for airlines and routes with competitors across the UK and Europe, not just with those in the same or neighbouring regions.  Airlines have extremely mobile assets which can be deployed at relatively short notice to serve the most profitable markets.  Any public sector support should be proportionate to the economic benefits resulting from a new route or service, and should not be of a scale which makes it the overriding factor in airline decisions.

37. The Regional Air Connectivity Fund, for which funding was doubled in the last Budget, is well intentioned by could have unforeseen consequences.

38. Few, if any, UK airports operate in a catchment area that does not overlap with that of a competitor.  As a result, the Fund could result in services being diverted to less suitable airports, supporting routes from airports which are unsustainable in the long term.
39. Analysis of past UK Route Development Funds by the Centre of Aviation[3] shows a high rate of failure.  For example, the Air Route Development Fund for Wales (which operated in 2006-07) supported a Thomsonfly service to Barcelona and a Flybe service to Paris, neither of which remain in operation today. 

40. Business cases supporting applications to the new Fund should be based on realistic passenger figures, endorsed by independent aviation analysts, which demonstrate the long-term sustainability of the routes in question, without the need for ongoing subsidies.

41. Flexibility should be applied to measurements used to define catchment areas when assessing the potential competition implications of applications for funding to support new routes.  Whereas the European Commission’s Guidelines on State Aid to airports and airlines refers to two measures – 60 minutes’ travel time or 100 kilometres – and allows the specificities of each particular airport to be taken into account when assessing the size and shape of catchment area, we understand that only travel time will be taken into account by the Department for Transport when considering applications to the Fund.

42. The catchment area of Bristol Airport, and other major regional airports, has significantly increased over recent years through the trend of consolidation noted above.  A sixty minute journey is not a realistic reflection of Bristol Airport’s catchment area and could lead to funding for new routes from competitor airports which would replicate existing services from Bristol, distorting a competitive market.

Conclusions

43. The trend towards consolidation experienced in the regional airport market over recent years has moved the sector towards a more sustainable model with reduced route duplication and more efficient use of infrastructure.

44. Larger regional airports can generate the critical mass to support more extensive route networks and enhanced passenger facilities, while still offering passengers a convenient alternative to long surface journeys to airports in other regions.

45. Government intervention to support smaller airports is likely to have a negative impact on competition, with no net benefit to overall regional connectivity.

46. A flexible approach should be taken when measuring catchment areas to assess potential overlaps between airports.  Chosen measures should realistically reflect existing airport catchments in order to avoid route duplication.

47. Arbitrary thresholds for funding potentially disadvantage regional airports which fall just outside the cut off point.  This can be compounded by the use of similar thresholds for the application of regulations which can have administrative and cost implications.

48. Government policy should support a level playing field for airports regardless of size, recognising that selective intervention has the potential to distort what is a highly competitive market.

September 2014