Cornwall-Newquay Airport Expansion-The Case Examined-Elizabeth Baines - Chapter 5

<?xml:namespace prefix = st1 />Newquay Airport Expansion: The Case Examined (Revised Edition)

<?xml:namespace prefix = o />A report by Elizabeth BainesCommissioned by Groundswell Cornwall© Groundswell Cornwall 2007www.groundswellcornwall.org Chapter 5Potential Economic Impacts of Newquay Airport ExpansionAir travel is essential to the United Kingdom's economy and to our continued prosperity.148Department for Transport, The Future of Air Transport –White Paper and the Civil Aviation Bill, December 2003. Summary1. Newquay Airport currently accounts for 1.7% of visitor numbers to Cornwall. (5.10)2. The Airport has been running a deficit for years. The 2003 Aviasolutions report contends that even with a forecast air passenger growth at the airport of 1.1 million passengers per annum by 2030 the airport will still run at a loss. (5.2, 5.3)3.Airlines pay neither fuel tax nor VAT, allowing them to offer cheap discount fares at the expense of the taxpayer. As those living in the South West travel by air less than people living anywhere else in the country they are effectively subsidising visitor’s airfares to the area. (5.4)4.        If the aviation industry’s tax breaks were withdrawn, the cost of air travel would increase and demand would fall. (5.4)5.        Cornwall County Council argues that for Newquay Airport to become economically viable it must reach an air passenger capacity of 500,000 passengers per annum. However, there is little or no evidence to suggest that this will decrease the current deficit. (5.3, 5.5)6.        Research illustrates that airport expansion does not encourage economic growth. (5.5)7.        The rising costs for the aviation industry due to Peak Oil (see chapter 3) and environmental legislation will have a negative impact on air passenger growth in the near future. (5.6)8.        The importance of Newquay Airport to Cornwall’s business sector is unclear. (5.7)9.        Calculations for the contribution of the aviation sector to employment vary widely. Airport expansion itself has only a minimal impact on job creation and there is a low ratio of jobs created per pound invested. Low cost carriers especially are reducing their costs by decreasing the number of people they employ. These include some of the main carriers serving Newquay Airport. (5.8)10.     Figures for the number of jobs relying directly on the airport and the number of potential jobs from airport expansion vary greatly. There is a wide discrepancy between the figures given by SWRDA and the Aviasolutions report. This discrepancy is surprising since SWRDA were one of the commissioning bodies for the Aviasolutions report. (5.8)11.     Around half of an airport’s workforce is composed of semi-skilled and administrative staff that are typically quite low paid.1 (5.8)12.     Air travel is not socially inclusive. The availability of cheap flights has mainly benefited the wealthier social classes who now travel more often. The cost of taking a holiday remains high regardless of the price of reaching holiday destinations. (5.10)13.     Government figures related to the contribution of air-bound tourism to the UK economy are erroneous. Spending at UK holiday destinations is largely dependent on UK residents.(5.10)14.     The car remains the dominant method of transport for holiday makers coming to Cornwall.(5.10)15.     Improvements to services such as bus and rail and the facilitation of car share schemes would ease increasing problems of heavy congestion in the peak summer period and benefit local communities in allowing residents to access services and amenities more easily and cheaply whilst producing less carbon emissions. (5.10)16.     The Cornish tourism industry is dependent on the environment and local climate. Expanding air travel will lead to further climate change in the future, and less tourism.(5.10)17.     The South West runs a deficit from air travel, anticipated to increase as air travel increases.(5.10)18.     The planned increase in overseas holiday destinations to be serviced from Newquay Airport will increase people’s expectations and reliance on air travel at a time when they should be looking to reduce carbon emissions. (5.10)  Newquay Airport and the Cornish economy5.1 Newquay Airport’s air passenger profileResults obtained by Newquay Airport on the purpose of air passengers’ visits are as follows: January 2007What is the purpose of your visit?• business/education 40.3%• visiting friends/relatives 31.0%• pleasure/vacation 27.2%* As this data was collected in January there are likely to have been fewer leisure visitors than in the summer months. Although just over 40% of visitors are on business, the majority of visitors are leisure visitors, even in the winter months. August 2005 and 2006What is the purpose of your visit?                                                                            August 2005           August 2006Business                                  117   17.4%               68   12.6%Pleasure                                  325   48.2%             262    48.7%Visiting friends/relatives      232   34.4%             197    36.6%Other                                           0     0.0%               11      2.0%Total                                          674    100%            538   100%* *Statistics obtained from email correspondence with Jordan Whaley, Project Officer, Newquay Airport, 31/07/07. It is interesting to note the drop in the percentage of business passengers from 2005 to 2006. This calls into question the airport’s importance in encouraging businesses into the county. 5.2 Newquay Airport’s running deficit. Cornwall County Council became sole owners of the airport in 2004, the same year in which the BBC reported on the airport’s running deficit of £750,000.  The airport faced an overall shortfall of £1.7million.149 This had occurred despite an increase in passenger numbers; the increase had been mainly due to the growing popularity of low budget airlines, which pay lower charges. In 2005-6, despite an assumed £500,000 of additional income through the planned introduction of an Airport Development Fee (ADF), Newquay Airport still ended the year with a deficit of around £1.2m, partly due to increasing operating costs.150 This deficit was funded by the County Council. 5.3 Passenger growth scenarios The 2003 Aviasolutions report assessed the economic impact of different air passenger growth scenarios at Newquay Airport. The results were as follows: 1.        With passenger numbers at Newquay Airport growing to 1 million passengers per annum (ppa) by 2030 the airport is ‘forecast to post operational losses of around £1m ppa. This negative trend is further impacted when depreciation charges as result of a heavy capital expenditure programme of £13.9m are included’. 2.        If air passenger growth were to grow to 1 million ppa but Exeter and Plymouth Airport were to close, ‘the negative financial performance at Newquay Airport [would] continue’. Newquay Airport would be expected to show a ‘loss of £1m by 2015 and just over £0.7m by 2030.’ 3.        If Plymouth Airport were to close, leaving Exeter and Newquay to serve the far South West, Newquay would be forecast to grow to around 1.1 million ppa by2030. Yet ‘when depreciation charges due to future developments are brought into the equation, the airport is forecast to post an operating loss of -6%. Newquay remains financially non-viable in spite of traffic growth of 10%’.151  Under all scenarios analysed, Newquay is forecast to run at a loss. The current deficit is unlikely to improve if passenger numbers rise. Even with the introduction of the Airport Development Fee, the airport is nowhere near being able to cover its losses. 5.4 Aviation subsidiesThere is no justification for public subsidy of flying, which is mainly the preserve of the better off.152 ippr, The sky’s the limit: policies for sustainable aviation, 2003. National and international legislation is currently biased towards aviation over alternative methods of transport: A ‘loose regulatory touch’ is applied to deal with aviation’s environmental impacts in comparison to other industries. In particular, emissions from international flights are excluded from the current international climate change agreement and airports slip through the net of air quality regulation.153 Unique subsidies and tax exemptions allow the aviation industry to offer cheap discount fares. Airlines do not pay fuel tax or VAT. In the light of this, the Friends of the Earth calculate that every UK taxpayer effectively subsidises the aviation industry by over £300 per year regardless of whether they fly or not.154  The ippr similarly calculates that the taxpayer subsidises duty free shopping at airports to the tune of £400 million a year.155 The real cost of an air ticket does not therefore reflect the true cost, the tax payer having already subsidised the fare: Funding is provided either through discounts offered by the airport itself, or through public funding to enable airports to offer even more attractive discounted user charges.156 Considering that those in the South West travel by air the least in the country,157 it is likely that the Cornish taxpayer would effectively be subsidising the cost of inbound traveller’s air travel if Newquay airport were to expand. If tax regimes were reformed to withdraw aviation subsidies the real cost of flying would be higher and demand for air travel would be less.158 Even a low rise in air travel costs would instigate a dramatic decrease in air passenger numbers (see sections 4.18 and 4.19).  Given the growing attention being given to these subsidies, the imminent impact of Peak Oil and the likelihood of decarbonisation measures, it ishighly likely that air travel costs will increase in the near future. 5.5 The impact of ‘no expansion’Failure to provide additional capacity would become a barrier to future economic growth and competitiveness.159Department for Transport, The Future of Air Transport –White Paper and the Civil Aviation Bill, December 2003. Cornwall County Council stresses that transitional works to prepare the airport for obtaining a CAA license are not intended as airport expansion works.  Nonetheless, to enable the airport to run at a profit, the Council do intend to drastically increase air passenger numbers. The proposed transitional works will include improvements to existing facilities to enable the airport to cater for this growth. The Council asserts that ‘the airport is essential for the economic growth of the county’160 whilst emphasising that the airport must reach an air passenger capacity of 500,000 per annum to become economically viable.  However, not only do low-cost carriers prevent profitable deals from being made on services, Newquay Airport’s peripheral location puts it at a heavy disadvantage.161  There is no evidence to suggest that an increase in passenger numbers will counteract the airport’s growing deficit. The Department for Transport warns that without airport expansion, ‘much of the future growth in air travel - along with the associated economic growth - could in due course migrate elsewhere’.162 However, conclusions drawn by Transport and the Economy, an influential report by the Standing Advisory Committee on Trunk Road Assessment (SACTRA 1999)following three years of research on the relationship between transport and the economy, show that airport expansion does not encourage economic growth:·          generalisations about the relationship between transport projects and economic growth are invariably simplistic, misleading and likely to exaggerate the overall benefits·          the effects of transport on economic regeneration are strongly dependent on local circumstances·          it is possible to ‘decouple’ growth in traffic from growth in the economy using appropriate policy instruments. In contrast to popular belief, cutting traffic growth could bring greater prosperity whilst reducing the negative effects of congestion and environmental damage.163 There is no clear relationship between expansion in already mature transport systems and economic growth.  This is acknowledged by the Oxford Economic Forecasting 1999 report; ‘We have been unable to identify in the data a separate effect [on productivity] for aviation from that caused from the transport infrastructure as a whole.’164 p.39.  5.6 The additional costs of climate change and peak oil As highlighted in chapter 3 and sections 4.18 and 4.19, the likely increase in aviation costs due to the rising cost of oil and introduction of ever stricter environmental taxes will have a large negative impact on the aviation industry. The aviation industry will be hard hit by rising fuel costs because of:a)       its high rate of fuel consumption, and…b)       the fact that there is no alternative to oil based jet fuel. Moreover, if the aviation industry were to increase passenger numbers as forecast, its own contribution to climate change would increase. This would have a negative effect on GDP. The Friends of the Earth 2006 report on aviation calculates that an extra £21 billion would have to be spent tackling climate change if airport expansion in the UK were to continue as forecast.165  The Energy Research Centre also questions the Government’s cost benefit analysis in Aviation and Global Warming, criticising the Government for having overvalued the economic benefits of flying and undervalued the environmental cost.166 5.7 The importance of airports to regional and local economiesFailure to provide some additional capacity could have substantial repercussions in the country as a whole, as well as for us individually.167Department for Transport, The Future of Air Transport –White Paper and the Civil Aviation Bill, December 2003. The Government often emphasises the importance of airports for the development of regional and local economies: Air services serve an important role in attracting inward investment,particularly from overseas, help to stimulate and sustain the growth of local businesses by opening up new markets and supply chains.168 The Oxford Economic Forecasting report states that better air transport services encourage more businesses to locate in an area, as well as affecting investment decisions by existing companies. It comments that: Nearly one in ten companies report that the absence of good air transportlinks has affected their organisation’s decisions to invest in the UK. Of these, 30% chose not to make the investment in the UK.169 Yet this has more to do with the existence of airports than airport expansion. Once the transport infrastructure is in place, expanding this infrastructure has only a limited impact on economic growth and does not necessarily have a positive impact.170 Newquay Airport claims that:There is very strong support for the airport within the business community in Cornwall – in Cornwall County Council passenger surveys, 70% of business users say that the airport is either essential or important to their business. Further, almost half (49%) of business passengers stated that the availability of flights from Newquay had affected their decision to locate or remain in Cornwall.171 In contrast to these findings, the results from Cornwall County Council’s 2006 Newquay Airport Passenger Survey equate less importance to the airport in terms of business investment.  In the Newquay Airport Passenger Survey, only 19 out of 65 business passengers (29%) said that the airport was essential to their business. 24 out of 64 passengers interviewed said that the airport had affected their business location decision (although they were not asked how their decision had been affected).172 Any assertions made on the basis of such small samples should be treated with caution. It would be disingenuous to claim that they substantiate the case for an expanded airport. Aviation’s relationship to employment.The aviation industry directly contributed £11.4 billion to UK GDP in 2004and employed 186,000 people.173Oxford Economic Forecasting, The Economic Contributionof the Aviation Industry in the UK, October 2006. 5.8 Aviation and employment in the UK Aviation is often accredited for making a substantial direct and indirect contribution to employment:·          Oxford Economic Forecasting calculate that that aviation industry employed 186,000 people in the UK in 2004 and that in total an estimated 523,000 jobs in the UK were dependent on the aviation industry in 2004, equivalent to 2.0% of total employment.174·          The Department for Transport states that ‘the UK aviation industry directly employs about 200,000 people (including an estimate for those working as cargo handlers or in retailing, catering, or in hotels, at airports)’, and that 600,000 jobs in the UK depend indirectly on the aviation industry.175 ·          According to Transport Statistics Great Britain, the Civil Aviation Authority (CAA) reports that worldwide employment rates by UK airlines are as follows: Year        Numbers employed2003        84,8952004        83,5722005        84,383* Sourced from Transport Statistics Great Britain, 2006 Edition.176 The CAA’s figures are much more modest than those of the Department for Transport and Oxford Economic Forecasting; the latter’s figures for the number of people employed by airlines in 2004 are more than double those given by the CAA. As discussed in section 5.6, the aviation industry benefits from disproportionate tax exemptions. Sewill calculates that, because of these, every job in the aviation industry is subsidized to the tune of £45,000 a year.177  Neither is airport expansion an effective way of creating new jobs.  The Oxford Economic Forecasting 2006 report comments that:There has been very little change in employment in the aviation industrysince the 1998 estimates produced in our previous study, despite the 30%+ increase in passengers over this period, implying a substantial rise in passengers handled per person employed.178 Although airports create jobs initially, airport expansion does not have a large impact on job creation.  Many no-frills airlines are currently looking to reduce costs bydecreasing the number of people employed per pound invested.  These are also the airlines (such as Ryanair, BMI Baby and Flybe) that will be looking to expand their services once air passenger capacity at Newquay Airport increases. 5.9 Aviation and employment in Cornwall According to the Department of Transport, Newquay airport directly employed 100 people in 2003.179  According to Newquay Airport:Over 700 Full-Time Equivalent jobs exist within the Cornish economy which are supported directly or indirectly by the airport…These relate to the operation of the Airport itself and also net increases in tourism activity through the availability of direct flights.180 The South West of England Regional Development Agency (SWRDA) puts the figures as being even higher, calculating that 1,000 jobs would be safeguarded if the airport were to be kept open, and that 2,000 could ‘potentially’ be created.181 Yet the Newquay Airport website only refers to the creation of ‘several hundred more jobs’ following the expansion of the airport.182<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> Given the rise in passengers handled per employee, it seems unlikely that there will be an extra 2,000 jobs created at the airport, even if air passenger numbers were to rise to over 1 million ppa. The 2003 Aviasolutions report states that if Exeter, Newquay and Plymouth airports were all to continue to grow and if total traffic at Newquay airport were to reach 1.01 million passengers per annum by 2030 then ‘there could be around 1,000 employees in 2030.183 Considering that SWRDA were one of the commissioning bodies for the Aviasolutions report, it seems peculiar that only two and a half years after its publication SWRDA have calculated the number of employees reliant on the airport as being 1,000.  This is the same number that the Aviasolutions report said would be employed at the airport were passenger numbers to increase to 1.1million ppa.