Clause 9 - Operators of areas

Civil Aviation Bill – in a Public Bill Committee at 5:30 pm on 28th February 2012.

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Question proposed, That the clause stand part of the Bill.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport 5:45 pm, 28th February 2012

Clause 9 defines an operator of an airport area as the person who has overall responsibility for the management of all that area. That means that where two separate entities both have some form of management control over an airport area—for example, the lessor and lessee of a passenger terminal building—only one of them will be defined as the operator of that area for the purposes of the clause, so only one of them can be made subject to regulation.

It is important to be able to identify a single operator of an airport area so that it is clear who exercises requisite control for regulatory purposes. In some cases, for example where there are complicated leasing arrangements, it may not initially be clear who the airport operator is. The CAA believes that the current structure of designated airports is unlikely to give rise to difficult issues in that regard.

Subsection (2) empowers the Secretary of State by regulations to make provision about when a person is or is not to be treated as having overall responsibility for the management of an airport area. Subsections (3) and (4) provide that the regulations may, in particular, make provision for determining who the operator is where specified matters, such as access to and development of the area, are controlled by different persons.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

Will the Minister comment on how the measures would work where a group of companies own multiple airports? Would the operator be the individual subsidiary, say East Midlands Airport Ltd, or would it be Manchester Airports Group? That may be relevant where one company owns more than one airport in a market area. One may want to test whether the combined effect of the ownership leads to dominance or market control, whereas the individual airport perhaps would not.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

The answer will vary depending on who is actually in control in the sense that I have just outlined. However, my hon. Friend is right to say that  the factors that the CAA will take into account will include ownership of other airports. The legal operator will be the one that is ultimately licensed.

Photo of Mike Freer Mike Freer Conservative, Finchley and Golders Green

On subsection (1), will the Minister clarify whether, in

“overall responsibility for the management of all of the area”,

“all of the area” means the perimeter of the airport or all operational areas within the airport?

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

As I outlined in relation to earlier clauses, we have a distinction between core and non-core areas, and the reason for that is essentially to ensure that we do not accidentally give the CAA authority to start regulating, for example, car parks where they are not associated with airport facilities, such as runways and terminals, where there is the exercise of substantial market power and where the appropriate tests in clause 6 are satisfied. We have this slightly complex system to ensure that peripheral areas, such as car parks, will not be subject to airport economic regulation unless they are linked to an airport where there is a dominance that covers core economic services, such as a runway or terminal facilities.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

On a point of order, Mrs Riordan, may I have some guidance? Clauses 9 to 12 all deal with competition within terminals, and, although it is not a four-clause stand part debate, I would like to talk in general terms about all four clauses.

Photo of Linda Riordan Linda Riordan Labour, Halifax

If the clauses are related, of course you can.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

Clauses 9 to 12 are sneaky clauses, because they effectively provide for secondary legislation to determine that there will be competition within terminals. In those airports with more than one terminal, which—there may be others—seems to be Heathrow, Gatwick, and Manchester, no case has been made that there is a problem or that they would be improved by having competition within those terminals, and there is no experience in this country of having such competition. Rather than include “just in case” legislation, which may create a burden on people in the future when no case for it has been made, it should not be there.

What we know from experience of John F. Kennedy International airport—I guess that many Members of the Committee will have travelled to New York through JFK, where each of the many terminals is handed over to an airline or several airlines—is that it is a very expensive and inefficient airport. So, where we have international experience, it is not good experience, and where we have domestic experience, it shows that there is no need for this change. On that basis alone, we should not create a power whereby, just through the use of secondary legislation and a statutory instrument, this change can be introduced without proper, full debate and discussion about some of our country’s important economic assets. Again, that indicates to me that this is a regulatory Bill rather than a deregulatory Bill.

If one gets down to specifics, there is not a problem, but if one looks theoretically at what might happen—as these clauses ask us to look—I would speculate, and international experience would almost certainly support  my speculation, that we would get increased costs and capacity issues related to those increased costs; that it would be very difficult, given the configuration that we have in this country, to cater for different airline needs; that there would be transactional costs as one moved from one regime to another, which all Governments of whatever party always underestimate; that it would be more difficult to plan; and that it would be difficult to make price controls that were transparent and fair.

I will talk a little, first of all, about differing airline needs; I can talk in some detail about Manchester airport, but less clearly about Heathrow and Gatwick. The third terminal at Manchester, which I was responsible for signing the contract on, was specifically designed for British Airways to be the centre of its European network of airlines. Because of the changes in the aviation industry, BA has consolidated, primarily into Heathrow and Gatwick. That has left us with a terminal in Manchester that is not suitable for package holiday flights.

I just use that example to show that terminals are not always as flexible as one might expect them to be. If one was to consider how to introduce competition into that terminal, one would find that it would be very difficult to do so. The same is true of the second terminal at Manchester, which opened in 1993 and which I was also responsible for. It has a very simple design; passengers come in at one level and go out at another level, and it is designed entirely for international traffic. It would be very difficult to mix it up with domestic traffic. If one was to introduce competition, there would be large costs involved in changing that second terminal over. There are specific air-bridges designed for the kind of tour operators that use it.

Is anybody seriously saying that, by introducing competition, the costs of running an airport, or even the costs of a single-terminal operator, would be reduced, if there was the much more complicated situation of two operators operating in the same area? Unfortunately, I am old enough to remember when the European regulations came in that demanded competitive baggage handling even though there was not sufficient space for competitive baggage handling within a lot of airports. Baggage handling became not more efficient but less efficient, because there simply was not room to handle the baggage when there were three separate operators. That was a European directive—it was not the Conservative Government of the time—but it was particularly unhelpful for running an airport.

There are also capacity problems. If one is to have competition, which means, I suppose, that different operators operate parts of a terminal and offer different prices for different airlines to use it, it is possible only if there is spare capacity. We have to be able to move from one to the other or to expunge somebody’s contract. Again, spare capacity is likely to increase inefficiency and costs.

I have mentioned the transactional costs of moving from one regime to another. I have never known any Government of any colour to get the estimates right for the transactional costs of moving from one regime to another. Any estimate can normally be multiplied by three.

Airlines think that they decide where they go and that they are mainly responsible for bringing in customers to an airport, but—I have done this myself—airports, particularly competitive airports in the regions that  have it much more difficult than Heathrow and Gatwick, are going out to try to attract airlines into their terminals. If an airport wanted to attract Malaysia Airlines into a terminal, it would be much more difficult if it had to negotiate with two different operators. If an airport wanted to bring business to this country and to the city in which it operated, the proposal would be another unnecessary hurdle to attracting such business. Finally, price controls would also add complications.

This is a particularly ill-thought-out proposal. I do not where it came from. There is not a problem; if there were a problem, this would not be the solution. I hope the Minister will withdraw these clauses, which all address the same issues, or else I would hope to press at least one of them to a vote.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I also want to address all four clauses. I contemplated giving the same speech four times to see whether I would improve each time, but I do not think the Committee would appreciate that, so I will speak once to all four clauses.

The proposal, which will allow an airport to be compelled to transfer a terminal to another operator, has been said to be an idea without merit. There is no industry clamour for it, and I have been told that it has been included just in case, in the future, someone somewhere decides that it is a good idea. Well, I am sure there are lots of things that we might want to put in a Bill just in case someone somewhere, in the future, decides that they are a good idea, but, rightly, we do not do it.

I will outline why I do not believe it would be a good idea to have these clauses in the Bill and why they should be removed here and now. My local airport is Manchester airport—I should declare an interest because, like every other citizen of Greater Manchester, I am effectively a shareholder in the airport because it is owned by the 10 metropolitan boroughs—and it is not only located in the area, but rooted in the community. Of course, Manchester airport wants to make profits and to have as many routes as possible, and, of course, it sees itself as fundamental to the economic growth and health of the region, but it also wants to be as good a neighbour as possible.

The airport operator plans for the whole airport, and it has to deal with the airport’s neighbours and take account of environmental concerns. It has to consider how to get passengers and workers to and from the airport, it has to invest in transport infrastructure and improvements to the terminals, and it has to provide a good service to passengers and airlines. Basically, it has to take a strategic overview of all airport operations and implement them practically.

Now imagine a situation in which the airport is split and another operator takes over the running of a terminal. There is an immediate decrease in capacity. Currently, an airport such as Manchester carries some headroom across the airport as a whole. Where necessary, flights can be transferred to any of the three terminals, so  excess capacity is as small as it needs to be. If a terminal is transferred, each operator would have to build in headroom, thus immediately decreasing overall available capacity.

There are also economies of scale; the benefit of one efficient operation would diminish and, as my hon. Friend the Member for Blackley and Broughton said, the transactional costs would increase enormously. Manchester Airports Group is effective because it can negotiate with suppliers and other interested parties to get good deals. Good contracts with companies such as Smiths Group, SSP and Compass Group and with brands such as Costa and Burger King would disappear, meaning that the airport would be less financially secure and there would be higher charges for passengers. If we want to increase the employment opportunities for accountants and solicitors, this is the way to go. A great deal of time and money would be wasted in legal agreements between the two operators. Bean counters would have a fine time working out how things such as car parking fees should be allocated.

What would happen if one of the operators did not want to invest in general improvements? Manchester airport recently made a large investment in the airport railway station and it is about to invest £50 million in bringing Metrolink to the airport. What if another operator is in competition at the airport and it does not want to invest? The airport cannot say that only those passengers travelling from terminals 1 and 2 can catch the Metrolink and everybody travelling to terminal 3 has to walk.

Competition is not good for its own sake; it is good only if it brings improvement to the whole operation—for passengers, freight, the environment and the community. It does not matter that I have two buses to choose from if I cannot afford to catch either. The bodged privatisation of rail should be an example of what not to do—ever rising prices and no real competition. It does not matter who runs Atherton station; I have the choice of only one station and only one sort of train, and that is common across the whole rail network. It is rare for any of us to have any real choice between operators and routes.

There is a never-ending cycle of blame on the railways. Whose fault is it that the train is late? Network Rail? The operator? Who owes whom money? We do not need to bring that same sort of competition into the air industry. There is competition of a different nature, so we do not need to reduce it down to what I see as ridiculous airport terminal competition.

The clauses that potentially enforce the transfer would not improve our airports. Transfer is not wanted, it would not benefit anybody and we do not need the “What ifs?” The clauses should go or, at the very least, apply only to regulated airports. The amendments I tabled were not selected, but I hope that the Minister will omit the clauses. If that is not done at this stage, I will certainly table amendments again on Report.

Ordered, That further consideration be now adjourned. —(Bill Wiggin.)

Adjourned till Thursday 1 March at half-past Nine o’clock.