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Q May I begin by exploring some of the Bill provisions relating to the relationship between the CAA and National Air Traffic Services? Perhaps we can come on to the issues relating to the air travel organisers’ licence after that. I understand that the proposed changes have been broadly welcomed by stakeholders. I am struggling to understand how significant they are. They change the procedure through which the CAA can modify regulations under which NATS operates. Do we have any sense of how many of them are likely to happen and how often? The impact assessment says that the scale of the issue with which we are dealing is highly uncertain. Can you give us any guidance on the scale of the changes?
The changes are all aimed at modernising our regime. We change the licence periodically: perhaps once or twice every three or four years we introduce a raft of changes, which are mainly to do with the charges that NATS can pass on to airlines and the service standards that it needs to meet. Of course, all of that needs to be balanced, because we need to ensure that it can finance its businesses.
I think it is worth saying, in order to give you comfort, that these measures are almost precisely similar to measures that were passed in the Civil Aviation Act 2012 in relation to our regulation of airports such as Heathrow and Gatwick. My answer to your question is that they are very helpful and to be welcomed. They modernise what is now quite an outdated regime for NATS, and they put NATS on a very similar footing to other regulated entities.
In terms of NATS’s protection, it is important to say that nothing in these changes takes away our primary duty towards the safe system—safety. We also have a secondary duty to make sure that NATS cannot find it unduly difficult to finance its licence for activities. For those reasons, I strongly welcome these measures.
Q Looking ahead to the next few years, for the moment we will be part of the single European sky framework. That, presumably, could bring a number of initiatives under it that would be relevant to the provisions in this Bill. Am I right about that? What could the impact of Brexit be on this area of the Bill?
I fear I would be misleading you to be too precise about what some of those impacts would be, but one thing we have made clear in conversation with departmental colleagues is that we can regulate NATS successfully using our domestic legislation under the Transport Act 2000. This is one of the reasons why we are keen to modernise it in this way.
It is too early for me to say whether there would be an impact one way or the other. On the things we most care about—safety—NATS has been able to charge good prices to airlines and provide a good level of service. I am quite comfortable that the regime we would have in the UK based on the Transport Act 2000 would give us sufficient levers, particularly with these modernisation changes.
Q The impact assessment, again, talks about the likelihood of there being what it describes as a “light-touch” review of these new arrangements after five years and “a full review” after 10. I must confess that I could not see reference to either of those in the Bill. What was your understanding of the review arrangements around these changes?
I cannot speak to that specific review, but I think it makes sense to review the powers that have been introduced after the event. We have done that in other arenas, so it is something we would welcome. We can work with the Department on the timing of that.
First, it is worth saying that the changes in the Bill at the moment are enabling provisions, but they are to enable us to implement the package travel directive. There are a number of important and welcome developments from that which will be good for UK consumers. First, the directive makes it much clearer what the definition of a package is. This may seem self-evident to most people but an industry of loopholes has developed over the years. Having clarity on this is a good thing.
Secondly, the package travel directive puts a requirement on member states to have effective regimes in place for insolvency. This is a big step forward compared with where we are today. It is also worth saying—although John may have a better view on this—that this provides a growth opportunity for UK businesses as firms in this country will be able to sell their goods and services into Europe.
John de Vial:
We certainly support that view. The provisions in this Bill are necessary and we have no concerns about them as enabling legislation. I agree with Richard’s subsequent points. UK companies can currently sell in other European markets but they are required to license separately and individually in each market to comply with its version and its implementation of the 1990 directive. If we have a regime with the directive to come, which the provisions lay the ground for, and our traders in the UK can use the ATOL system and the Department for Business, Energy and Industrial Strategy arrangements to comply across Europe, that is a clear advantage for them trading across European member states.
Looking at it the other way round, if there is a company that is established in another part of the European Union but sells into the UK, I understand that the package travel directive would say Q that the protections that it should offer would be those that would be applicable in that member state, rather than those that would be applicable in the UK.
Q Is there any potential downside to that? For any packages sold into the UK by companies established outside of the UK, could the protection be less than it is now?
John de Vial:
Not less than it is now—we have that problem today. The current UK ATOL regulations and package travel regulations exempt companies that are compliant elsewhere. We have seen the problem in recent history. Our view is that, to the extent that this new directive is more robust and should raise the bar of implementation and enforcement in other member states, that can only be a good thing.
John de Vial:
No, I don’t believe it will. I think there are a number of aspects where the ATOL position is superior. The most obvious example is repatriation. The directive requires the costs of repatriation to be protected, so all member states should be doing that. The UK is not unique, but is one of a small number of member states, where organised repatriations—where the customer is, as it were, rescued—is the norm. We do have a superior system in the UK in that sense.
Q A final couple of questions from me, and it is back to Brexit again. A lot of the changes in the Bill arise out of the package travel directive. From what you have said, some of our domestic ATOL protection is superior to what is in the package travel directive anyway, but are there any implications of Brexit for what this Bill brings in?
Regardless of Brexit, this is a set of provisions that we would be supporting. It is worth remembering that 77% of UK consumers choose their holiday in Europe. As John suggested, the position around insolvency protection may not be all the way up to ATOL gold standard, but it will be a lot better, and enhanced by this package travel directive, than it is today. The former directive we fall back on is from the early ’90s, which predates the growth of the internet and people buying their holidays online.
John de Vial:
I support that. It is also part of our job, with the ATOL brand and our brand as the Department for Business, Energy and Industrial Strategy’s approved body, to promote the merits of the schemes in the UK with UK businesses, where those exceed the European base level.
Q The Bill provides for an air travel trust to be set up by the Secretary of State, but also leaves open the possibility that that could be split into a number of trusts if circumstances change. Could you tell us a bit about what that is all about and the kind of circumstances?
If I may, I will declare an interest as a trustee of the current air travel trust. The consultations and discussions that the Department has had with the industry and consumer groups have suggested that the position around how people buy holidays could change. They are very keen to have some flexibility. Rather than have one trust hardwired into legislation, they want to give themselves some more flexibility. For instance, one example that has been talked about a lot is linked travel arrangements, where it is not quite a package, but is two transactions for hotel and travel that are very closely associated. In my view, it would be prudent and sensible for Government to have the flexibility to respond to that. It is my understanding that that is why they are taking the enabling provision at the current time. In implementing that, I hope that they will follow the practice that they have followed today: consult with us, consult the industry, do the impact assessment, and so on.
Q I would be grateful if I could explore one other area with you briefly. One thing that raised a number of eyebrows when this Bill was published was the fact that it did not say anything about the regulation or safety of drones. How do you see the existing regulatory framework, and if we were going to look to improve that framework, who do you think should be responsible, for example, for bringing in geo-fencing?
Drones are something that we are spending an enormous amount of time on—getting the balance right between effective regulation to prevent aviation-related risks and allowing this new technology and market to grow. There is an existing set of regulations for both commercial and public operators, but it is worth highlighting two important initiatives that we should all take stock of.
First, the Government are consulting on the future regulation of drones at the moment; we are working with them on that. Also, at the European level, the European Aviation Safety Agency, EASA, is doing some important work, which we hope it will publish in April and which may relate to international manufacturing standards, because things like geo-fencing, which effectively prevents drones flying into controlled space, are only really effective if that can be done through international manufacturing standards. That is one of the reasons why we are keen to see that EASA publication, which is mooted for April, before we decide next steps.
On the issue of penalties in respect of ATOL, you will know that this Bill attempts to amend the Transport Act 2000. In respect of section 225 of the Transport Act 2000, you will also know that there is a responsibility to prepare and publish a policy statement on the use of penalties. How do you envisage these penalties taking shape, and how will you ensure that their use is proportionateQ ?
The first thing I would say is that our having powers to introduce financial penalties for NATS brings us into line with the powers that we have for airports. It also brings us into line with other economic regulatory regimes in energy, water and telecoms, so it brings the regulation of NATS up to the modern standards of the other sectors.
We already have a published policy on how we would go about issuing a financial penalty for the airports. My starting position would be that the policy should be similar for NATS. Financial penalties are rare events in economic regulation: they do not come around too often, and there is a good reason for that. But they are a necessary part of the armoury, if you like, to drive the right behaviours and give a deterrent effect.
We would obviously have a graduated approach to enforcement. That would start off through informal means—conversations with the company, looking to it to put the issue right. If that had failed, we would move on to a more formal footing with them. I tend to think of financial penalties as a bit of a last resort but, as I said, it is important to have them there because it incentivises the right behaviours.
Q The other question I was going to ask reflects the point made by the hon. Member for Birmingham, Northfield about the post-Brexit deal on travel. We have been a leading player—one might say a trailblazer—in terms of providing protection for holiday makers, haven’t we? Post-Brexit, it is really important that we retain consumer protection across Europe. What are your views on that?
I completely share that objective. To go back to the point that John made, I think there is a job to be done by the CAA, ABTA and other groups on raising awareness with UK consumers about the level of protection that they get from different types of products. You can imagine a future where we are in a less binary world in package travel than whether something is ATOL-protected or not. There will be a graduation of protections that consumers can get. It is important that we work with consumer bodies to raise the level of awareness.
We start from a solid and good basis. The scores for levels of awareness of ATOL, which is often seen as the gold standard, are about 75% or 80%, so we start in a good position for that work.
Q Some UK operators have stated that they feel that passenger rights go too far. Which passenger rights do you feel are most contentious in the industry?
A number of airlines have expressed concern not about the principle of compensating consumers for delays, but about the tariff—the amount that is charged. It is important to get the balance right. It was not so long ago that airlines did not take the issue at all seriously. We saw long delays and a lot of consumer detriment as a result. I hear from a lot of chief execs of airlines that although they would wish for a lower tariff, because it is clearly straight off their bottom line, this is not front and centre of their urgent priorities. I do not know whether John would take a different view.
John de Vial:
I think that our members would agree. If you look at the package travel directive—that particular piece of work has been updated to allow for a new directive—there is broad industry support for it. I do not think there are any great concerns about it. The EU regulation 261 regime on denied boarding and flight delays is a different issue. A much smaller number of airlines have concerns about the denied boarding piece, but the concerns are principally around the delay regime whereby, through the European Court of Justice process, the same sort of tariff for delays has been adopted as existed and was intended for denied boarding. That is viewed as a rather blunt and sometimes counter-productive regime. The loudest voices are heard around that and there is considerable merit in it being revisited.
On Richard’s point, it is about the level and proportionality of the tariff, where compensation for a few hours’ delay can be a multiple of the purchase of a low-cost ticket. That is seen to be an injustice—it is not the principle of providing the protection, but the way in which it operates.
Q I would like to come to NATS, which I understand expressed concern about economic uncertainty and market volatility following the Brexit vote. It thought that air travel demand and, therefore, its revenues might suffer. Has there been any evidence of that to date?
Not that I can tell from the financial numbers that I look at. Indeed, in terms of the assumptions that we made with it for the last regulatory settlement, traffic has been better than we predicted.
Q So that we can have a better understanding of how NATS works, let me ask about the ability to extend the length of its contracts to give them greater financial certainty. What sort of length of contracts do they typically operate with London airports at the moment? What levels of extra investment would you be looking to see NATS make with longer-term contracts, because presumably, it is unable to put that in at the moment?
The position is different at different airports and in different regulatory regimes. The issue is the minimum notice period that is required before the Government can terminate the franchise, if you like—for want of a better expression. That minimum notice period counted down. NATS quite rightly, in our view, said, “We need to make long-term investments, and we need to raise debt on the open and private markets.” People looking at a shorter, shorter franchise find it quite difficult.
We did quite a bit of work to look at this. We spoke to financial advisers and looked at other regulatory regimes. Our advice, after looking at the asset price of the business and other regulatory regimes, was that 15 years feels like the right number for NATS. NATS is a slightly different business from some of the asset-intensive industries. It is operational based, rather than capital intensive. Having done the analysis, we very much support the Government provision to move this out from 10 to 15 years.
One of the most important and significant aspects of the Bill is the provision enabling us to take action on past licence breaches. One feature of NATS is that if the systems have an outage, as they did in December 2013, you do not need a lot of time to create a lot of disruption to passengers. For instance, a 24-hour outage led to disruption for nearly 250,000 passengers, and there were 300 cancelled flights. Of course, you can put the system back very quickly—it is a 24-hour event—but if we do not have the power to look at past breaches, there is a risk, on behalf of consumers, that we are going to look toothless. That is one reason why I support the provisions that the Government are putting forward in this regard. I think that is one of the most important aspects of the package.
Q Can I ask about rights in the Bill? The big change is that you make the modification and NATS has the right to appeal, as opposed to the co-determination model that we have at the moment. There is also a provision for other parties to appeal, including the owners or operators of aircraft that you consider appropriate and the owners or managers of prescribed aerodromes that you consider appropriate. I am struggling to work out who has got the right to appeal the modifications you make to NATS’s licence. What does prescribed aerodromes mean?
The appeal mechanisms that are being introduced for NATS effectively replicate the same appeal mechanisms that we have for the regulated airports. For instance, an airline can appeal a determination that we make for Heathrow or Gatwick airport. There is an element of consistency across aviation in these provisions. Because NATS provides the London terminal airspace service, it also touches directly on some of the London airports—principally the large ones, but there may be some small London airports in it as well. It is right that the Government has a provision to name those airports, because they will be materially affected by certain decisions that we will take over the settlement that we reach with NATS.
If there are no further questions from members of the Committee, I thank our witnesses for their evidence, and for their time and co-operation. It has been most helpful. Thank you very much. We are running a little ahead of schedule, so I propose to suspend the Committee until 4.10 pm, as the witnesses for the next panel have not yet arrived.