Written evidence from the Airport Operators Association (AOA) (GPP 04)

Introduction

1. This response is submitted on behalf of the Airport Operators Association (AOA), the trade association representing the interests of 50+ UK airports. The AOA is the principal body the UK Government, parliamentarians, and regulatory authorities consult with on airport and related matters.

2. Aviation contributes some £52 billion to the economy, supports around one million jobs and provides more than £8 billion in tax revenues to the Exchequer, according to a 2014 report by the consultancy Oxford Economics. Moreover, according to the ONS over 73% of inbound visitors arrive by air and they spend more in the UK than those arriving by sea or through the Channel Tunnel, on average around £728 per person. For UK holidaymakers going abroad, more than 80% depart on a plane. Leisure travellers coming to the UK by air contribute 112% more tax than visitors using other forms of travel, and provide 85% of the tax that the Government gains from inbound tourism. UK airports handle 55% of all exported goods (by value) outside the EU and provide essential connectivity for exporters, inward investors and other business travellers.   

Air Passenger Duty

3. The AOA believes that the Government should reduce current levels of Air Passenger Duty (APD) in order to boost productivity and exports. 

4. The UK levies the highest rate of aviation tax in the world. Compared to those countries in Europe which still levy such a tax, it is charging on average five times more; and in 22 out of 28 EU countries, no APD is levied at all, with several countries that were charging APD, such as Ireland, now abolishing or freezing it. Since 2006-07, total Treasury revenues from APD have increased from £971 million in 2006-07 to £2.9 billion in 2013-14. Revenues are expected to increase still further, to £3.8 billion in 2017-18.

5. A 2013 report carried out by PwC – The Economic Impact of Air Passenger Duty – concluded that while the abolition of APD would help UK consumers and foreign tourists visiting the UK, the biggest gain could be for UK businesses which, given access to cheaper airfares, might be able to spend more time with key overseas customers. It stated the following: “Our model suggests this could lead to business expansion and an increase in productivity. There is a range of evidence from industry and academics which suggests as business connectivity and trade routes expand; productivity and hence GDP increase. A key conclusion emerging from these studies is the strong linkage that has been observed over the last 20 years between airline industry growth and GDP growth. In the context of the airline sector, if the cost of purchasing an airline ticket falls in response to an APD cut, companies could accommodate more trips to visit customers and gain access to larger marketplaces. Furthermore, a cut in APD might be expected to make international routes from the UK viable, boosting connectivity and facilitating increased overseas trade.”

6. It is not just the aviation industry advocating these changes. All the major business groups are too, with quotes from reports they have produced below:

“The cumulative effects of year-on-year real-terms-rises in APD could ultimately cost the economy a staggering £10 billion in lost growth and up to 250,000 fewer jobs.” – British Chambers of Commerce (BCC), Flying in the Face of Jobs and Growth, 2011

“Reduce and reform Air Passenger Duty, a trade tax on Britain’s global traders – ensuring British businesses are not put at a cost disadvantage when conducting business and market research abroad” – BCC Business Manifesto 2014/15

“Reform APD to support all export routes from all regions and nations” – CBI 2015 Budget Submission

“(APD) makes us uncompetitive against the rest of Europe and hits jobs” – IoD, Flying into the Future, 2012

“59% of London businesses believed that increasing APD levels were a barrier to their future exporting activities. This demonstrates the impact that the high level of APD applied to air travellers flying from UK airports has upon British business opportunities overseas and the Government should look into reducing the rate of APD.” – London Chambers of Commerce & Industry, Exporting Britain: Trading Our Way Back to Growth, 2013

“Our members are all too aware of how much of a burden APD is to those companies travelling to “to do the deals” that stimulate jobs and growth in the UK” – Guild of Travel Management Companies

Airport Capacity and Connectivity

7. The AOA believes that in order to create a modern transport infrastructure and ensure that the UK remains a successful “trading nation open to international investment”, which the Government lists as two of the key areas for raising productivity, Ministers need to put in place policies to increase the country’s airport capacity and connectivity, and to make better use of existing capacity. 

8. There is no doubt that the UK’s performance in terms of aviation connectivity could be stronger. While the UK enjoys a strong position in transatlantic routes and to traditional markets such as India, it is linked to relatively fewer destinations in emerging markets such as Brazil, Russia and mainland China. The AOA takes the view that in order to prosper in an increasingly globalised economy, the UK needs to compete in both established and emerging markets, and that this requires both vibrant point to point airports and world-class hub capacity. We support all airports that wish to grow and believe in making best use of existing capacity.

9. The AOA welcomes the completion of the Airports Commission work and supports the assertion it has already made in its Interim Report regarding the need for both airport expansion and making better use out of existing capacity (which will support new long-haul routes to emerging markets and facilitate additional investment in the UK’s regions). Now that the Commission has published its Final Report, the Government should respond swiftly to maintain momentum, remove uncertainty and ensure the UK gets the additional capacity it so vitally needs as soon as possible.

10. With respect to making better use of existing capacity, the AOA believes that there is scope to do this through a combination of measures, such as reducing all levels of APD (as set out above), improving surface access (road and rail) to speed up journey times to and from UK airports, investing in route development and continuing to promote and prioritise effective international marketing of air links to, from and within the UK, and, as the Airports Commission Interim Report highlighted, promote the importance of smaller airports for accommodating business and general aviation.

September 2015