Virgin Atlantic Airways Response: Air – Consultation on an overall 50% reduction policy plan and an Environmental Report

Introduction

Virgin Atlantic Airways (VAA) was established in 1984 to provide a competitive customer service orientated alternative for business and leisure passengers on long-haul routes between the UK and major international destinations. We now operate 39 long-haul aircraft, employing circa 8500 people and carried more than 5 million passengers in 2016.

As a predominately transatlantic long haul airline, we have been steadily investing in Scotland since we started our Glasgow route to Orlando ten years ago. Alongside our joint-venture partners Delta Air Lines we operate on Virgin Atlantic metal to Orlando, and on Delta Air Lines metal to New York JFK from Edinburgh and Glasgow. We also work closely with Flybe connecting people through their services on to long haul flights out of other UK airports to destinations across the world.

Consultation one (Policy for an overall 50% reduction in Air Departure Tax by the end of the current session of the Scottish Parliament)

1. Do you support the ’s policy plan to reduce the overall burden of ADT by 50% by the end of the current session of the Scottish Parliament? Please answer ‘Yes’ or ‘No’.

Yes

2. Please explain your answer to question 1.

According to research by the World Economic Forum, Britain has the highest ticket taxes and airport charges in the world1. This is especially true for long haul passengers. Devolution presents Scotland with an opportunity to reach a more competitive level of long haul tax. There have been several recent reports on the damage of this tax including the PwC report The Economic Impact of Air Passenger Duty2 which found reducing the tax would create jobs and increase economic activity in both tourism and trade.

Last year, Steer Davis Gleave published Flying high? How competitive is ?3 with the charts below showing the current UK level. The report clearly found the UK was most uncompetitive on long haul APD affecting our ability to trade, export and welcome high value tourists from across Asia, Africa and the Americas.

1 http://www3.weforum.org/docs/TT15/WEF_Global_Travel&Tourism_Report_2015.pdf 2 http://airlinesuk.org/wp-content/uploads/2013/09/APD-study-Abridged.pdf 3 http://airlinesuk.org/wp-content/uploads/2016/03/BATA-Air-Passenger-Duty-Final-Report-March-16.pdf

The Scottish Government has taken a progressive position on Air Departure Tax recognising the distortive impact the current UK tax has on trade and tourism. The recent history of air passenger taxes across Europe shows country after country removing the tax because of the negative economic impact. Only a handful of other such taxes remain in Europe, all at a much lower level.

United Kingdom Germany Austria Greece France Italy Estonia Luxembourg Croatia Latvia Denmark Sweden Spain Slovakia Slovenia Poland Belgium £0 £10 £20 £30 £40 £50 £60 £70 £80

Current level of long haul economy taxes across Europe

The lack of competitiveness becomes even starker when you consider the global, OECD league table.

United Kingdom Germany Australia Austria United States Chile Israel Greece Mexico France Italy Estonia Luxembourg Denmark Sweden Spain Slovakia Slovenia Poland Belgium Turkey Switzerland Portugal Norway New Zealand Netherlands Korea Japan Ireland Iceland Hungary Finland Czech Republic Canada £0 £10 £20 £30 £40 £50 £60 £70 £80

Current level of long haul economy taxes, OECD countries

This month, RDC Aviation Economics published Reaching Out to the World – How Scotland’s Aviation Connectivity Compares, finding that Scotland’s weakest area is in direct long-haul connectivity, where it ranks 12th out of 12 in terms of the number of destinations served. This was in comparison with twelve countries of relative size. This includes countries which have abolished their aviation tax such as the Netherlands and Ireland because of the negative economic impact.

In 2014, Ireland abolished its which was implemented in 2009, citing the negative impact it had on the economy. Since Ireland abolished its air tax, Dublin Airport has led passenger growth amongst major airports in Europe with 2016 increasing 11% to reach a new record of 27.9 million passengers – more than four times the population of the island of Ireland. Over the past two years, passenger traffic at Dublin Airport has increased by over 28%, equivalent to an extra 6.2 million passengers that are estimated to have created an additional 5,200 jobs around Dublin airport alone.

The Netherlands introduced an air passenger tax in July 2008 that was abolished a year later. The tax was abandoned due to a decrease in the number of passengers departing from airports in the Netherlands and a steep decline in visitor numbers. Whilst raising €300 million, it was estimated that €1 billion was lost due to the fall in visitors.4

Northern Ireland was devolved the power to levy APD in 2013 on long haul flights which it subsequently scrapped. This move was attributed with safeguarding the route between Belfast and New York. Virgin Atlantic has since started a Belfast-Orlando service creating further jobs in that region.

This high level of tax puts Scotland at a competitive disadvantage compared with their European counterparts which have much lower, most often zero flight taxes. A significant reduction in band B would help to redress that inequity.

3. If you answered ‘Yes’ to question 1, please provide any suggestions you may have on the most effective way, in your view, in which a 50% reduction in the overall ADT burden should be applied across tax bands and tax rate amounts in order to achieve the Scottish Government’s overall connectivity and sustainable growth objectives. For example, should: (a) all of the ADT reduction only be applied to short-haul flights; (b) all of the ADT reduction only be applied to long-haul flights; (c) ADT be reduced equally by 50% across all flight types; (d) some other differential combination be applied?

The initial focus of tax reduction should be where the tax is most uncompetitive. The recent UK Budget announced a further increase to the long-haul rate of £3 which will increase the rate to £78/£156 from 1 April 2018. In comparison to average yearly increases of £2 or £3 in economy for long haul APD, band A has remained constant at £13 over the last five years, which is an effective

4KiM Netherlands Institute for Transport Policy Analysis, 2011. ‘Effects of the Air Passenger Tax. Behavioural responses of passengers, airlines and airports’.

real terms reduction. This is in addition to a progressive family tax cut of abolishing APD for children which disproportionally benefits short-haul travellers as the majority of family air travel is to Europe. The charts above highlight how uncompetitive long haul APD is.

The Scottish Government should focus on reducing the long haul rate. Doing so would target key emerging markets like China and India and established long haul markets like the United States to build a more progressive economy.

It could allow Scotland to seek better trading and inbound tourism relationships with China, India, the US and other international markets, which includes the highest value tourism spends, and great potential for new exporting and trading opportunities. The figures from Visit Scotland show the importance of these tourism markets to Scotland. In 2016, the US was Scotland’s largest source market measured by number of visits with almost half a million, and in terms of expenditure with Americans spending over half a billion in Scotland.5 Chinese visitors also spent significantly per person but from a much lower base of 41,000 visitors6.

Consultation two (Environmental report)

1. What are your views on the evidence set out in the Environmental Report that has been used to inform the assessment process? (Please give details of additional relevant sources).

We, alongside the UK aviation sector as a whole support the principles of sustainable growth. To that end we were one of the founding members of Sustainable Aviation which has sought to collaboratively tackle some of the key sustainability issues; reducing carbon emissions, reducing our noise impact, and investing in second generation sustainable fuels.

The growth of the aviation sector brings many benefits to the UK economy in terms of greater connectivity, employment, and export opportunities. It is important that as we continue to reap the benefits as a country, we make sure we do our utmost to alleviate the dis-benefits from aviation.

Sustainable Aviation published the CO2 Road Map in March 2012. It concludes that UK aviation is able to accommodate significant growth to 2050 without a substantial increase in absolute CO2 emissions. We believe this can be achieved through the deployment of technology, sustainable fuels, improved operational measures and carbon trading.

The UK aviation sector is putting considerable resources into making the improvements to technology and operational practices that will help deliver this target but to take full advantage of the opportunities to reduce CO2.

5 http://www.visitscotland.org/pdf/FinalUSAFactsheet20173August.pdf 6 http://www.visitscotland.org/research_and_statistics/visitor_research/visitor_research_international.aspx

The UK aviation industry is also committed to reducing the noise impact of aircraft operations. Launched in April 2013, the Sustainable Aviation Noise Road Map sets out how we believe that aircraft noise impact can be reduced between now and 2050 through the introduction of new quieter aircraft into fleets, new technologies, operational improvements, and improved planning controls in the immediate vicinity of airports.

At Virgin Atlantic, over 99% of our direct emissions come from flying our aircraft. That's why we've set ourselves the ambitious target of reducing the carbon emissions from every mile we fly by 30% between 2007 and 2020. Our 2017 sustainability report highlighted our total aircraft CO2 emissions were 4.04m tonnes in 2016, an 8% reduction on last year, and a 22% reduction since 2007.

A major part of these reductions will come from our investment in new aircraft with seventeen Boing 787-9s in our fleet by 2018, and twelve new Airbus 350s joining between 2019 and 2021. These aircraft are substantially cleaner and quieter than the aircraft they will replace, circa 30% more fuel efficient, utilising the latest engine and airframe technology. We have chosen to fit Rolls Royce Trent 1000 engines where key emissions improvements come through a low NOx combustor.

We also invested in ten A330 aircraft in 2012 which have significant fuel efficiency savings. By the end of 2021, we’ll have a 100% twin engine fleet, with each aircraft giving about 30% savings per trip compared to the older aircraft they’ve replaced – a combination of the aircraft’s own improved efficiency, as well as detailed route planning to maximise passenger numbers on board.7

In October 2011 we were delighted to announce a partnership with exciting new fuels company LanzaTech. Since then we've been working with LanzaTech to bring this technology to commercial scale. Their technology uses a microbe to convert waste carbon monoxide gases from steel mills

(which would otherwise be flared off direct to the atmosphere as CO2) into ethanol. The alcohol is then converted to aviation fuel. Analysis suggests that the sustainable fuel will emit 60% less carbon than the fossil fuel it will replace. Importantly, as the process uses a waste-stream, the sustainable fuel produced does not impact on land use or food production.

There are lots more examples of our initiatives in our annual Sustainability Report.

7 http://www.virginatlantic.com/content/dam/vaa/documents/footer/sustainability/Virgin_Atlantic_Full_Sustai nability_Report_2017.pdf#page=7