Written evidence submitted by UK (PEG0191)

Airlines UK welcomes the opportunity to submit evidence to the BEIS Committee inquiry into Post-Pandemic Economic Growth.

Airlines UK is the trade association representing UK-registered airlines. Our members are 2Excel, AirTanker, , CargoLogicAir, easyJet, , Jet2.com, , Norwegian Air UK, , TUI Airways, , , and West Atlantic.

Airlines UK members employ in excess of 90,000 people, serve over 276 million passengers and carry around 1.2 million tonnes of cargo.

Airlines UK response to inquiry questions

What core/guiding principles should the Government adopt/prioritise in its recovery package, and why?

UK airlines share the vision of a post COVID-19 UK economy that is stronger, more sustainable and more productive, and which works for all the UK’s nations and regions. Aviation will play a key role in this future, connecting us to the world, supporting business and UK exporters, and the hundreds of thousands of jobs that rely upon aviation directly or indirectly, including within our world-leading aerospace or tourism sectors.

Any economic recovery package must recognise aviation as a strategic industry for the UK, supporting the third largest aviation network in the world, behind only China and the United States. The sector supports some 4.5% of the UK’s GDP when including the value of foreign tourists arriving by air, translating into 1.6 million jobs across our nations and regions – including in the aerospace & tourism industries1. Around 40%2 of the UK’s non-EU trade by value is transported by air, and AUK’s members transport over 1 million tonnes of air cargo annually.

However, this leading status is under threat given the significant impact of the COVID-19 pandemic. It is essential that Government understands the damage caused by the pandemic but also how with the right support, the sector can emerge on the other side with as many jobs and as much infrastructure intact as possible, and with opportunities to support a green economic recovery – and the long term success of the sector - through investment in low carbon aviation technologies.

Impact of Covid-19 on aviation Since March flights from the UK have essentially been grounded. The impact for the industry has been extremely sharp, because whilst revenue has been all but eliminated during that period, substantial costs have remained beyond those for employees covered by

1 https://www.iata.org/en/iata-repository/publications/economic-reports/united-kingdom--value-of-aviation/ 2 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 the furlough scheme, which has been an essential lifeline. Nearly 44,000 airline staff have been furloughed as a result of the coronavirus pandemic. The timing of the pandemic has also been particularly challenging. The bulk of airlines make their money in the northern summer season. This has been impacted significantly this year, even with the introduction of a limited number of Travel Corridors from 10th July. The introduction of Travel Corridors allowing quarantine-free travel from low risk countries, and concurrent change to FCO travel advice, was a major boost to the sector, allowing a cautious restart of operations to a number of key markets, mainly in Europe. However, we have since seen a number of countries removed from the quarantine exemption list, including Spain and France, hugely popular destinations for UK travellers.

Latest figures from IATA indicate that 2020 will see over 154 million fewer passenger journeys from the UK, putting over 700,000 UK-based jobs at risk. Airlines in Europe are set to lose (at least) $21.5 billion in 2020, with passenger demand declining by over half3. The impact on inbound tourism is also huge. An impact assessment on the UK economy by The World Travel and Tourism Council (WTTC) estimates the fall in international tourist numbers to the UK could result in the amount spent dropping by 78%, or £420m a week4.

3 https://www.iata.org/en/pressroom/pr/2020-06-18-01/ 4 https://www.theguardian.com/business/2020/aug/26/drop-in-tourism-could-wipe-22bn-from-uk-economy- says-wttc-covid-19?utm_term=Autofeed&CMP=twt_b- gdnnews&utm_medium=Social&utm_source=Twitter#Echobox=1598433067 The scale of the challenge is highlighted in the graphic above from IATA which shows the extent of the impact on demand and how recovery is expected to be gradual over the coming years with recovery to 2019 levels not expected until 2024.

Research5 by York Economics for Airlines UK shows that, in this context, without intervention by the Government UK airports will initially lose around 600 routes as a result of the pandemic before gradually recovering, with 80% of the lost routes in the UK’s regions outside . UK Government must recognise the scale and impact of this crisis on UK aviation and act accordingly.

Lowering the costs for airlines and supporting passenger demand will enhance the capacity and level of connectivity in the next year. This in turn will support the retention of jobs, and the broader aviation infrastructure – including airports and ground handlers.

The research undertaken by York highlighted that a 12-month APD waver would:

• Save around 45% of routes that would otherwise be lost by summer 2021. • Boost passenger demand by around 21 million; and • potentially save 8,000 jobs and £7 billion in GVA.

Moreover, there is an important opportunity to ensure that as the sector begins to recover, no time is lost in safeguarding its sustainable long term future and leveraging the economic opportunities of low-carbon aviation technologies such as sustainable aviation fuels to support a green recovery, benefitting the whole UK.

5 https://airlinesuk.org/emergency-air-passenger-duty-waiver-would-save-45-of-lost-air-routes-and-save- 8000-jobs-study-concludes/ How can the Government borrow and/or invest to help the UK deliver on these principles?

In our answer to the next question (measures and support) we set out in detail what UK aviation will need to restart and recover, and rebuild consumer confidence. In answer to this question, we will focus on the significant opportunity for Government to accelerate the progress towards aviation decarbonisation whilst supporting a near-term green recovery, benefitting the whole UK.

UK aviation has identified that the greatest opportunity for rapid aviation decarbonisation (as part of a wider package of measures including electrification) is investment in Sustainable Aviation Fuels (SAF) from second generation biofuels6. SAF could cut UK aviation emissions by over 30% by 2050. These are produced using proven technology, meet strict sustainability criteria and use existing supply infrastructure. Around the world, over 200,000 commercial flights using SAF have taken place, generating carbon cycle savings of 70% or more when compared to fossil fuel-derived kerosene.

6 file:///C:/Users/Griggs/Downloads/SustainableAviation_FuelReport_20200205%20(7).pdf. With financial support and a supportive policy environment, by 2035 14 production facilities could be operational in the UK employing around 5,200 people and contributing £742m annually to the UK economy. With export included, this value could grow to 13,600 jobs and £1.9bn. However, investment decisions are being made now, and action is needed in the short term if we are to deliver on the potential of these fuels in the longer term.

SAF is an area where UK aviation is already leading the world, with news only last month that Europe’s first waste-to-SAF facility received planning permission in North East Lincolnshire – a project being developed by Velocys in partnership with British Airways and Shell. By creating the right investment climate now, the Government can help ensure the UK is amongst the first countries to commercialise this technology and deliver meaningful capacity and carbon reductions. The most important action that the Government could take to make this a reality is committing £500m of Government funding over five years, matched by industry and commencing in 2020, to close the capex funding gap for the first few schemes, given the challenges of funding first-of-a-kind facilities.

What measures and support will businesses need to rebuild consumer confidence and stimulate growth that is sustainable, both economically and environmentally?

As outlined above, there is a strong expectation of a substantial reduction in demand and air travel over the winter 2020 and likely into the summer of next year, compounding the impact of the pandemic to date which has seen overall bookings down 82% year-on-year for 2020, compared to the outlook in June 2019.

The introduction of Travel Corridors between low risk countries and the UK, replacing the blanket 14-day quarantine of all arrivals, was a big step forward and enabled the restart of flights for many this summer. However, we have now seen quarantine being reintroduced at short notice for a number of key markets like Spain, causing significant disruption to airlines and distress and uncertainty for passengers. UK Government must do everything it can to help UK aviation adapt flexibly to this new normal, where Travel Corridor countries might experience local spikes in infections, whilst other higher risk countries might have lower risk regions or territories. A practical step would be to take the sensible and agreed principles behind Travel Corridors and the UK’s approach to ‘local lockdowns’ and enable quarantine free travel from sub- national regions where infections meet Travel Corridor criteria. These ‘regional Travel Corridors’ might be with mainland regions within Europe, islands even US states, so long as reliable data is available. We also need to see significant movement towards an effective UK testing regime for passengers. Testing offers significant potential to act as an alternative to quarantine, and for opening up travel to strategically vital markets like the United States. The roll out of testing is also supported by polling which shows significant public support for the choice. Exact testing requirements can be tailored to the degree of risk posed by an inbound passenger, with the aim to deliver the same level of risk as arrivals from a Travel Corridor destination. Critically, for testing to make a significant difference rather than be used by an exclusive few, it has to be affordable. Government should fund testing at least during a roll out phase to embed the technology and kick-start safe travel to the UK from critical markets. Germany has introduced free, mandatory Covid-19 testing for travellers returning from higher risk destinations, which include sub-national regions. Those with a negative test are able to leave isolation. Turning to economic support, in the short term, the priorities for UK airlines are lowering costs and supporting passenger demand as a way to enhance the capacity and levels of connectivity in the next year. This in turn will support the retention of aviation jobs and broader aviation infrastructure – including airports and ground handlers. The sooner airlines can begin flying again, the faster they can build back the connectivity, capacity and demand that underpins the industry and the jobs it supports.

The economic support measures put in place to date have been essential in preventing the collapse of our sector as revenues have hit near zero. The need for a stimulus package of measures for the industry is now even more vital to securing a recovery. We are, consequently, calling for an aviation recovery package that includes the following core elements, expanded upon below:

 An Air Passenger Duty (APD) waiver for all routes for 12 months, effective immediately  Removal of double domestic APD anomaly effective 1 January when we exit the transition period  The Coronavirus Job Retention Scheme to be extended for aviation.  Full reform of EC261 to be in place for 1 January  80:20 slots waiver for full Winter 2020 period  NATS, CAA and security charges to be underwritten by Govt for 12 months  Reduction of visa costs so we are equal with Schengen countries (at least for inbound visitors)  Enhanced support for international marketing / GREAT campaign  Support for aviation decarbonisation

APD APD is one of the key levers available to the Treasury by which it can re-establish the demand that underpins the critical connectivity on which the UK economy and aviation sector depends.

The temporary suspension of Air Passenger Duty (APD) for 12 months would make a significant difference to the sector’s recovery. Research carried out by York Aviation and commissioned by Airlines UK shows:

 Without intervention by the Government UK airports will lose around 600 routes initially, with the situation improving as the market recovers to being about 130 routes down by July 2021;  In 12 months’ time, around 80% of the lost routes will be in the UK regions;  With an emergency 12-month Air Passenger Duty waiver in place, the situation improves with the number of routes that would immediately return at around 35. This grows steadily as the market recovers, with an APD waiver supporting an additional 56 routes by July next year. In other words, by July 2021 it would have saved around 45% of routes that would otherwise be lost:  The APD waiver would boost passenger demand by around 12% over the next 12 months. This equates to around 21 million passengers over the 12 months against a baseline of 170 million passengers.  An APD waiver could potentially save 8,000 jobs over the next 12 months and enable the sector to support an additional £7 billion in GVA. This GVA saving is around 3.3 times greater than the expected revenue from APD over the next 12 months.

We also continue to call for longer term, substantive reform of APD, in the context of an anticipated review of the tax by the Treasury this summer. A key part of this is the removal of the double domestic APD anomaly effective from 1 January 2021. Currently, a person flying domestically between two UK airports pays APD twice, rather than only once as they would if flying outside of the UK. We understand that the legal barriers to making this change will be removed once the UK leaves the Transition Period.

Furlough Aviation and tourism-related business will comprise some of the last components of the UK economy to reopen and face ongoing travel restrictions to key markets over a curtailed summer season, compounded by lower than usual demand in the face of recovering passenger confidence.

Consequently, there needs to be a specific Coronavirus Job Retention Scheme for aviation and tourism businesses. As a minimum, furloughing for aviation and tourism businesses must continue at the full 80% rate until the end of October with a review at this stage to determine how support should be targeted after this period.

Government should engage with the sector and the businesses that depend on it to agree a customised flexible extension to the scheme that considers the exceptional circumstances that aviation and its associated industries face.

EU 261 Airlines UK has long been concerned about the disproportionate impact of the EU 261 regulation that covers airline compensation rules. Earlier this year, and prior to the current COVID-19 crisis, Airlines UK analysed flight and customer data submitted directly from four participating UK based airlines to deliver a comprehensive analysis into the effect of EU 261. A delay rate of little over 1% across the four airlines surveyed generated a liability of over €650m. That is equivalent to nearly 3.2% of the total revenue raised through airline ticket sales across the flights surveyed.

In all cases, EU261 liability for a delayed flight was at least double – but in many cases considerably more – than the ticket revenue generated by that same flight. For flights in 2018, incurred compensation across the airlines involved was equivalent to over 4% of their revenues. Airlines UK members believe that these results reinforce the case to revisit urgently, and as the UK exists the Transition Period on 1st January 2021, those previous attempts to reform EU261 to address its disproportionality, something supported at the time by the UK Government and had returned this year under a new European Council Presidency. Slots UK airlines welcomed the speed at which Government was able to grant the slot use waiver for the Northern Summer season, providing a significant piece of support for the restart phase.

Airlines are currently at an advanced stage of the slot coordination process for the Northern Winter season and are required to return slots they will not operate by the deadline at the end of August. It is clear during this first season of restart that the industry will not be able to operate at the same size and scale seen in previous seasons.

The certainty of a slot use waiver for Winter 2020 is needed as soon as possible to allow airlines to plan and reduce their schedules and avoiding so-called and wasteful ‘ghost flights’. Charges The Civil Aviation Authority recognises the enormous pressure all parts of the aviation sector are under and had deferred the scheduled increase of charges this year until July. This deferral was announced at a time when many thought that a V-shaped economic recovery might be possible and there was optimism that flights and air traffic would begin to pick up again in time for the summer season.

It is clear that at least a portion of that season is now lost, with the potential that air traffic may not increase to sustainable levels for the majority of the summer, particularly in-light of the demand-suppressing effect of the quarantine policy.

We understand that the CAA now has limited tools at its disposal to grant any further relief to the sector itself, and has prepared a payment plan for those organisations subject to increased charges for 2020/2021. Government should step in and fund the Civil Aviation Authority for the 2020/2021 charging period. Similarly, Government should facilitate the waiving of air navigation charges for the whole of 2020, saving UK carriers tens of millions of pounds, with payments guaranteed by HMG so NATS can continue to be paid and function as critical enablers of the wider UK aviation landscape, both through the current crisis and then into the recovery phase.

Aviation Decarbonisation As well as support for Sustainable Aviation Fuels detailed previously, as we move through the current crisis the UK aerospace sector needs to capitalise on the rapid drive towards developing more efficient and sustainable aircraft. This requires both a thriving aviation sector and significant investment in new technologies now. The Government should therefore increase funding for the Aerospace Technology Institute in line with the Aerospace Growth Partnership strategy to enable the UK to become a world-leader in hybrid and electric flight. The gearing should be adjusted to reflect the current difficulties the industry is facing. The Government should also consider front-loading the funding for R&D projects that need it. Currently the funding provides a percentage of funds every year to the project. This should be replaced by full Government funding for a specific length of time at the start of projects. This provides an important demand signal, helping companies with cashflow challenges and allowing them to continue vital work on R&D as they recover from the COVID-19 crisis.

Finally, airspace modernisation is one of the few things that can deliver carbon savings

immediately, worth 13m tonnes of CO2 over the next decade and £1 billion in fuel savings to airlines. However, the financial impact of Covid-19 is stalling this modernisation project and given the need for specialist staff to handle the complexity of this programme, once stalled airspace modernisation will be lost for a generation. To deliver this optimised airspace system and improve a crucial element of national infrastructure, we are seeking short term Government funding that would enable The Airspace Change Organising Group (ACOG) to complete the Airspace Masterplan, which will cut emissions immediately.

Whether the government should give a higher priority to environmental goals in future support?

We are a Council Member within the Sustainable Aviation coalition, representing the wider UK aviation sector. On 4th February this year the Sustainable Aviation members committed to achieving net zero carbon emissions by 2050 – a world first by any national aviation sector. Our Decarbonisation Road-Map7 published in February set out how UK aviation and Government could work together to help cut net carbon emissions to zero. This included action to support and invest in cleaner aircraft and engine technology, smarter flight operations through modernised airspace, sustainable aviation fuels (SAF) and high-quality carbon offsets and removals. The levels of decarbonisation through each strand of the road map are set out below:

We believe that continued efforts to decarbonise aviation can immediately contribute to the rebuilding of a resilient UK economy, enabling the country to rapidly bounce back from Covid-19. https://www.sustainableaviation.co.uk.

Whether the Government should prioritise certain sectors within its recovery package, and if so, what criteria should it use when making such decisions? What conditions, if any, should it attach to future support?

We have previously within this response set out the strategic case for ensuing a strong recovery of the UK aviation sector, looking at its direct and indirect contribution to jobs, connectivity and trade, as well as opportunities to support a green recovery, and the long term competitiveness of both UK aviation and the UK economy, through investment in sustainable aviation technology.

Action, therefore, is needed, but critically would also be impactful. We know that this crisis is having a particular effect on aviation – artificially suppressing demand and consumer confidence. Government has several levers at its disposal to boost demand and strengthen confidence during a critical period.

7 file:///C:/Users/Griggs/Downloads/SustainableAviation_CarbonReport_20200203%20(7).pdf What opportunities exist for the UK economy post Brexit and the pandemic for export growth?

We would highlight two key points. The first is the extent to which aviation and air connectivity acts as a facilitator of UK trade. In 2017, air freight represented transport 49% of the UK’s non-EU exports by value (£91.5 billion) and 25% of non-EU imports (£89.9 billion) – in total over 40% of trade by value. General air cargo forms the majority of air freight being shipped to and from the UK and is shipped predominately using passenger bellyhold capacity. Consequently, the more we can support UK connectivity, the more we are opening up opportunities for UK exporters.

Secondly, turning to sustainability, as highlighted Sustainable Aviation Fuels represent a significant export opportunity for the UK. As flagged above, by 2035 14 production facilities could be operational in the UK employing around 5,200 people and contributing £742m annually. With export included, this value could grow to 13,600 jobs and £1.9bn.

August 2020