meridian club think tank airlines

8/3/2019 Meridian Club Think Tank Airlines

1/6

Meridian Club Think Tank:Aviation and Airlines

Held on Thursday 8 September 2011

Millbank Tower , London


2/6

Objectives

1. Identifying key issues facing the sector

2. Understand the external factors shaping the future of the industry

Senior buyers, with responsibility for air purchasing, met in central London in

September under Chatham House rules, ensuring that all guests comments were

unattributed. The session was moderated by respected aviation consultant John

Strickland.

Air Passenger Duty (APD)

The UK governments continued refusal to accept the damage its aviation policies are doing

to UK plc was one of the major themes to emerge from the latest World Travel Market

Meridian Club Think Tank Airlines.

Air Passenger Duty remains a major concern and iswidely blamed for crippling any recovery

in the tourist trade from the country. Leisure operators have to find ways to absorb the costs

in order to remain not only competitive but also profitable. Business travellers are

increasingly aware of the cost burden too, although the state of the global economy remains

the main demand driver in this sector.

One guest mentioned that the additional cost of APD might dissuade global blue-chip

businesses from locating in London. With an eye on London 2012, it was felt that many

visitors to the games might be deterred from revisiting the UK because of APD.

More than one person mentioned that the Scottish and Northern Ireland parliaments were

looking at whether APD could be devolved. Belfast Airport has struggled to maintain long-

haul flights because departures from nearby airports in the Republic of Ireland were not

taxed as heavily. One guest remarked An Irish couple flying from Dublin to New York pays22 in taxes for the return journey; A British family from Belfast pays 120.

Further concern highlighted that it becomes much more economically viableto take

alternative routes of transport. One guest pointed out that cruise passengers departing from

the UK do not pay an equivalent tax. He also mentioned APD should be TPD (Travel

Passenger Duty) across all modes of transport, not just airlines.

It was also widely felt that consumers are not fully aware of the APD levy that charged to

fares/tour packages. Most Meridian Club members agreed that many air passengers are

blaming the airlines and travel operators for the increased costs in flying. The general feeling


3/6

is the public needs to be educated and made aware that it is not the airlines that are making

the profit on the increases but the government. The discussion also mentioned that

consumers only understand fully when they get a refund as they only are refunded on the

cost of the trip, not the tax they have to pay. All participants agreed that there needs to be

more transparency to consumers.

There was general agreement that APD is being used by the government as a cash cow to

fund projects such as dealing with the consequences of the banking crises and not going

into ecological projects such as alternative fuel research.

A final question that was discussed was how can the travel community come

together and act as a single voice for in order to be heard by the government?

Flight booking patterns

Despite the fact that the UK emerged from recession last year, concerns over the slow pace

of the economic recovery and tough public sector spending cuts by the UK Government

have led many potential travellers to worry about their job and alter their budgets

accordingly.

Passengers and holiday makers have become very budget focused and holding off until late

to try and get bargain deals. The delay in booking flights, particularly long haul flights, has

affected availability. This has impacted flights, mainly due to yield and APD, resulting in

higher costs for the consumer.

However it was not all doom and gloom. Tour operators generally felt that the summer

period was better than predicted as there was a large number of late deals across the travel

market.

Flights within Asia also ran to full capacity.

The future expansion of Heathrow

The government also came under fire for its refusal to consider expanding airport capacity in

the South East. It was felt that the third runway at Heathrow was off the agenda for political

rather than economic reasons.


4/6

Air links are crucial for the UK's economic success. Heathrow is the UK's only international

hub airport. One guest commented If we are to compete globally then we need an

international airport hub that can provide the connections that people need. This includes

business in the City of London as well as in the regions where transport infrastructure is one

of the top key factors for businesses when deciding where they should locate.

Many guests agreed that Heathrow's rival European hubs have more runways and capacity.

These include Amsterdam, Paris, Madrid and Frankfurt. The United Arab Emirates plan to

build 'Dubai World Central', a six-runway airport that aims to attract businesses to

relocate. China is planning to open a new airport every month for the next 5 years. It was

also felt that China is a key market for growth in terms of flight destinations, but currently, the

UK only has a very tiny share of the market.

None of these countries are making the commitment and investment without a strong

business case that will include competing with Heathrow's position as a major international

hub airport. Heathrow has slipped to fifth place in terms of non-stop destinations served -

behind Frankfurt, Paris, Amsterdam and Munich.

Concerns were expressed that many major international airlines would rather use Frankfurt

or Schipol as their European hub rather than take up available slots at Gatwick or Stansted.

There is virtually no spare capacity at Heathrow, hence the need for a third runway.

When asked their thoughts on alternative airports to Heathrow there was a lukewarm

response. One guest commented Why does the government not get the message that

many airlines do not want to use Gatwick as a 2nd airport to Heathrow? It was felt that even

Manchester would have preference to Gatwick.

Finally the conversation refocused on China and the opportunities for increased destination

flights. One guest mentioned a strong draw of traffic being established between China and

Africa. Some airlines are seeing opportunities for increased destinations such as links toAfrica as many Chinese workers are based in Africa.

Alternative Fuel

Meridian Club members discussed how airlines are pursuing alternative fuels to enhance

energy supply security and as a potential additional means of reducing emissions typically

associated with fossil fuels, including greenhouse gas (GHG) emissions.


5/6

China, one of the largest polluting countries, too is investing time and money for alterativefuels

There was general agreement that income generated from APD should be used for research

into alterative fuels instead of over Government projects such as the banking crisis.

Lobbing power of the UK Travel industry

Many in the room agreed that the UK travel industrys inability to talk with a single voice on

many issues such as APD and building a third runway at Heathrow was diluting its lobbying

power.

It was felt that there was a fragmented UK approach about coming together to lobby for APD

legislation change. There was no consistency in policy formation with transport ministers and

no cohesive messages to lobby government.

It is increasingly clear that there is a need for the public and private sectors in the UK to work

more closely together, as is the case in many other major tourism destinations.

One guest mentioned that the UNWTO Ministers Summit, held in cooperation with World

Travel Market, was set up four years ago to help the industry and politicians betterunderstand each others needs. We will continue to press the UK government to listen not

only to senior executives but also other countries which are feeling the impact of current

policies.

Moving forward

To close the session guests were asked to highlight their main concerns and likely impact of

the future of the industry.

Many in the room shared concerns of a possible double-dip recession; one guest

commented We may not have seen the worst of the recession. We may see more future

bankruptcies with travel.

Also highlighted was the consumer confidence (or lack of) in the economy, fear of job losses

impacting their decisions to travel. Fear of Increase in the number of consumers not looking

to plan their holidays in advance and wait for last minute deals


6/6

Another guest focused on the likelihood of future mergers between airlines we could

possibly see more mergers like British Airways and Iberia. In the Asian market it was felt

that there is a stronger likelihood of consolidations, e.g. Japan.

Low cost long haul flights: In the Asia Pacific region, there are two examples of low cost

long-haul carriers in operation, with AirAsiaX and Jetstar. These two carriers are being

closely watched and will spawn imitators. Even Southwest Airlines has hinted at the

possible development of a long-haul offshoot.

AirAsia Xs model is based on acquiring aircraft cheaply and flying them for up to 18 hours

per day in a very high density configuration and developing its route network around low-cost

airports. The carrier does not offer interlining or code sharing or other overheads that weigh

down traditional airlines. It is felt that there is a strong appetite for low-cost, long-haul traveldespite the tough economic conditions. Could this be a longterm viable strategy for

operators? Is it economically viable and sustainable?

Finally concern was expressed of expected APD increase by 25% by 2015 to further cripple

any recovery in the tourist trade for UK.

meridian club think tank airlines

Documents