Written submission from UK (CVT0041)

Airlines UK response to the International Trade Committee inquiry on the COVID-19 pandemic and international trade

24th April 2020

Airlines UK welcomes the opportunity to submit evidence to the International Trade Committee inquiry on the COVID-19 pandemic and international trade. Airlines UK is the trade association for UK airlines. Our members are , CargoLogicAir, DHL, EasyJet, , Jet2.com, , Norwegian Air UK, Ryanair, TUI Airways, , , West Atlantic and 2Excel Aviation. Airlines UK members employ in excess of 90,000 people, serve over 276 million passengers and carry around 1.2 million tonnes of cargo. The central message of this submission is the critical role that UK air cargo capacity plays as an economic enabler of international trade, and the importance of ensuring that UK aviation is supported to survive and recover strongly from this pandemic; critically, including the commercial carriers via whose bellyhold capacity the majority of UK air cargo is flown.

The role of air freight 1. Air freight plays a critical role within the UK economy. Airlines UK research1 has shown that the UK is more dependent on air freight services compared to most of its EU competitors. For example, while only a quarter of German exports to non-EU countries in value terms are transported by air, for UK exports it is nearly half. Only Ireland ships a greater share of its non-EU exports by air than the UK.

2. The report calculated the total economic contribution of the air freight sector to the UK economy, and found:

 In 2017 air freight represented 49% of the UK’s non-EU exports by value (£91.5 billion) and 35% of non-EU imports (£89.9 billion) - over 40% of total trade by value but under 1% by volume of goods shipped  UK air freight imports and exports were worth £181 billion in 2017  Air freight services contribute £7.2 billion to the UK economy and support 151,000 jobs  Critically, looking at air freight’s wider contribution to UK PLC, the study shows that across all sectors of the economy £87.3 billion of GVA is currently dependent on air freight exports, including a very significant proportion of some key industries’ output:

 Pharmaceuticals – £13.9bn  Computer, electronic & optical – £8.3bn  Creative arts & entertainment – £5.3bn

1 https://airlinesuk.org/wp-content/uploads/2018/10/Assessment-of-the-value-of-air-freight-services-to-the- UK-economy-Final-Report-v22-Oct-2018-b-SENT.pdf Written submission from Airlines UK (CVT0041)

3. Put simply, this value would not exist if businesses were unable to export their products by air. Air freight is also vital to the UK’s regional economies. Whilst less than 2% of ’s production is dependent on air freight services, equivalent figures across some of the UK’s other regions include:

 9% in the North West (worth 14.9bn)  8.6% in Wales  7.6% in the East Midlands  6.8% in the South West.

4. Air freight is essential to the transport equipment producing industries in the East Midlands, the North West, the South West and Wales, while pharmaceutical manufacturing in the North West makes very significant use of air freight.

Impact of COVID-19 on UK aviation

5. The impact of the COVID-19 outbreak on UK aviation has been severe and truly unprecedented. Global demand has collapsed, with markets with severe travel restrictions now covering 98% of global passenger revenues.

6. Currently, flight operations remain significantly curtailed as travel restrictions remain in place and countries grapple with the outbreak. The FCO is advising British nationals against all but essential international travel indefinitely, and we currently have no certainty on when global lockdowns will be eased.

7. This year, figures from the global trade body IATA show that passenger revenues are expected to fall globally by at least $252 billion, or 44% below 2019 revenues. Restrictions have all but eliminated airline and airport revenue, but not costs, which are substantial and far beyond solely wages. It remains unclear what the duration of the economic impact will be on the UK’s airlines and airports, who face a pressing challenge to survive.

8. Like all carriers, air freight operators - both dedicated freighters and commercial carriers with bellyhold capacity - operate in an environment of high fixed costs and often narrow margins. In many cases and particularly for commercial carriers with bellyhold capacity, travel restrictions have all but eliminated airline revenue.

9. Whilst air freight continues to move (and Airlines UK members are playing a vital role bringing in essential supplies, particularly of PPE equipment), the longer-term future of UK air freight as an enabler of UK trade is uncertain.

10. As highlighted, some 40% of UK trade by value is flown, from across the regions and nations of the UK. A majority of this is carried within the bellyhold of commercial aircraft – most of which are currently not flying. At Heathrow, commercial bellyhold cargo accounted for over 60% of total UK air freight volume in 2017. Written submission from Airlines UK (CVT0041)

11. Air connectivity is connected to trade levels. The UK has more freight capacity to the US than any other EU country, ensuring that last year 60% of the UK’s trade value with the US was transported by air (compared to 51% for France and 36% for Germany). By contrast, the UK currently has less capacity to China than either Germany or the Netherlands, and also trades less.

12. Air cargo capacity is, therefore, an essential enabler of trade but is also, at the current time, significantly curtailed, with its recovery linked directly to the health of the UK’s aviation sector as a whole.

Role of UK Government

13. We welcome that the Department for Transport has initiated an aviation restart and recovery unit, which will attempt to address how and when global aviation can return to normal, and all the practical and regulatory matters that will need to be considered for this to happen, including from a public health perspective. This work will also examine economic and policy measures to support the sector, and we remain clear that further such measures will undoubtedly be required to get UK aviation back on a competitive footing and to maintain its critical role in the UK economy and as the third largest aviation market in the world.

14. To date, UK airlines have welcomed the cross-economy measures implemented which will make a real difference to all businesses. But given the scale of the impact on aviation, they alone will not be sufficient and further industry-wide measures must be considered to both support UK air cargo both through the immediate crisis, and into recovery. 15. For example, we anticipate that once restrictions are eased, the return to normality for international aviation will be gradual rather than sudden, with demand returning gradually and carriers increasing capacity incrementally. There is a danger that should, for example, the CJRS ‘furlough’ scheme be withdrawn prematurely, carriers experiencing only a tentative revenue recovery will face a renewed cash crisis.

16. Consequently, we believe that the scheme will need to be extended beyond June, and that consideration should be given to measures – including a ‘tapering’ of the scheme or a review on a sectoral basis – to avoid aviation facing a cliff-edge, whilst services are scaled-up. This is as critical to the UK’s air cargo sector as it is for commercial airlines (via which a majority of air cargo belly hold capacity is generated).

17. Moreover, carriers as well as the wider UK aerospace and airports sector continue to urgently call for more flexibility in the existing scheme to enable UK aviation and Written submission from Airlines UK (CVT0041)

aerospace businesses to avoid unwanted redundancies and safeguard our staff’s regulatory compliance.

18. The Chancellor acknowledged the scale of the challenge facing aviation when he announced, on 17 March, that discussions would begin on a bespoke support package for airlines and airports. Since then, the Chancellor has been clear that bespoke support will be made available for UK airlines on a bespoke, individual basis (having exhausted alternative means), but that working with the Department for Transport, additional cross-sector measures to support recovery will also be considered.

19. Such measures will be needed to support aviation’s recovery from this crisis, and should include temporary alleviations of applicable taxes and industry charges, including Air Passenger Duty (APD), and regulatory easements, similar to the kinds of support that countries around the world and within Europe have been making available to their own aviation sectors. For example, on 31st March the European Commission approved a French scheme deferring payment by airlines of certain taxes (equivalent to APD) to mitigate economic impact of coronavirus outbreak2.

20. We believe the Government should review these measures urgently, to safeguard jobs and the UK’s international competitivities as global trading nation.

2 https://ec.europa.eu/commission/presscorner/detail/en/IP_20_514