English Regional Airports Could Lose 2.2 million Annual Passengers by Devolving APD in UK, claims Report

An alliance of eight regional airports have joined forces to respond to the UK Government’s discussion paper on the options for supporting English regional airports from the potential devolution of Air Passenger Duty (APD) to Scotland and Wales.

The airports, including Newcastle, Birmingham and Bristol have commissioned new research into the costs of devolving APD, which states that without policies to mitigate the effects of APD cuts in Scotland and Wales, English regional airports could see their passenger numbers fall by around 2.2 million by 2025.

Powers to devolve APD to Scotland are currently being debated in Parliament and the Government is also considering devolving the same powers to Wales. The airport alliance say that the impact, particularly for those in the North, is so great that to ‘do nothing’ is not an option and any reductions in APD in Scotland need to be matched across the rest of the country.

In a joint letter to the Chancellor of the Exchequer, the airport bosses go on to say that, if UK-wide matching is not possible, then Scottish reductions should be matched at all non-congested UK airports. This would, they argue, meet the Prime Minister’s commitment made during the General Election campaign that the government will ensure other airports “don’t lose out”.

Airport signatories to the letter to the Chancellor of the Exchequer comprise Robert Sinclair, CEO, Bristol Airport; Paul Kehoe, CEO, Birmingham Airport; Steve Gill, Managing Director, Doncaster Sheffield Airport & Durham Tees Valley Airport; Matthew Roach, Managing Director, Exeter International Airport; Andrew Cornish, CEO, Liverpool John Lennon Airport; David Laws, CEO, Newcastle International Airport and Andrew Bell, CEO, Norwich International Airport.

The alliance notes the publication of the Smith Commission report, in November 2014, which proposes the devolution of APD to the Scottish Government, and the subsequent decision of the main UK political parties to support this recommendation. The Scotland Bill, which will enable such a provision to become law, is currently being debated in Parliament and is expected to become law in early-2016.

The Scottish Government has said it will first reduce APD by 50 per cent, as soon as the necessary powers are acquired and legislated on by the Scottish Parliament, and then abolish it. It is also worth noting comments made by the Welsh Government that it would abolish APD if the power to set its own rate was devolved, as is currently being considered by HM Government.

A report by York Aviation for the consortium of English regional airports found that without policies to mitigate the effects of APD cuts in Scotland and Wales, English regional airports could see their passenger numbers fall by around 2.2 million by 2025.

If a 50 per cent reduction in Scotland is matched at non-congested airports across the rest of the country, passenger numbers at English regional airports would increase by up to 6.5million per year by 2025, while a 100 per cent reduction will see passenger numbers at English regional airports increase by 16.5million per year by 2025.

Due to its geographic location Newcastle Airport would be the worst impacted by devolution to Scotland and would stand to lose around 510,000 passengers per annum by 2025 (around 10 per cent of traffic) if devolution goes ahead, the largest percentage impact on any airport. Bristol is also forecast to lose around 440,000 (around 5 per cent of traffic) with APD devolution impacting on its competitive relationship with Cardiff.

York Aviation suggests the losses at Bristol and Newcastle would be dominated by international short haul markets and domestic markets. This is likely to result in some frequency loss on domestic services and some contraction of the international short haul network. Its report suggests this is likely to come mainly from the loss of thinner low frequency routes. However, there may also be frequency loss on some high volume routes.

“All of our regional airports play a vital role in supporting the local economy and connecting businesses across England with opportunities around the world. This devolution of powers has the potential to greatly damage this positive impact,” said David Laws, Chief Executive of Newcastle International Airport.

“Our modelling shows, if APD was lowered for non-congested regional English airports, they would be protected from the impacts of devolution to Scotland and that such an approach would help to rebalance the economy while assisting key Government strategies,” he added.

Newcastle Airport plays a vital role to the North East English economy, supporting 7,800 jobs and directly contributing £403 million to regional Gross Value Added (GVA) every year. Over the last ten years it has added key new long-haul air services including Emirates Airlines to Dubai and United Airlines to New York, both of which would be under threat from APD devolution, according to York Aviation.

Speaking to Routesonline last week senior Newcastle Airport officials said the predicted impact of devolved APD upon the airport and the North East is so great that ‘do nothing’ is “not an option” and any reductions in APD in Scotland “should be matched across the rest of the country”. If this is not possible, the executive said the Scottish reductions “should be matched at all non-congested UK airports”.

While an across the board matching is not one of the options in the discussion paper and that the government might feel that this would be too significant an intervention at this stage, Newcastle Airport and its fellos signatories to this letter to the Government say they will support the introduction of varying of rates of APD within England, as the most preferable option.

Providing an airline perspective on this matter, the Board of Airline Representatives in the UK (BAR UK), which represents over 70 scheduled airlines in the UK in their dealings with government, government departments, regulators and airport operators, is pushing for the removal or universal reduction of APD across the whole of the UK.

It is widely acknowledged that the negative economic impacts of the highest tax of its kind in the world is driving devolved bodies to consider slashing, or abolishing, APD to gain a competitive advantage for their regions. The current Government clearly recognises that it inherited a deeply flawed air tax and has made small steps to improve fairness, but tinkering is no solution to the challenges posed by tax devolution, according to the industry body.

“The Government’s priority should be to grasp this opportunity to finally resolve the fundamental economic, competitiveness and fairness issues of APD for consumers and businesses, rather than give serious consideration to the three half-baked proposals to assist English regional airports with differential rates of air tax, as presented in the Treasury’s current APD Discussion Paper,” said its chief executive officer, Dale Keller.

“Why should flying from one UK airport or region cost more in tax than another? With Scotland’s commitment to halve APD by 50 per cent and potentially abolish it altogether, now is the time for the UK Government to take the lead and abolish, or significantly reduce, APD for the benefit of the entire UK,” he added.