Lord Deighton: Airlines are wrong to argue against investment in Heathrow

26 May

Lord Deighton is a former Commercial Secretary to the Treasury,  served as Chief Executive of the London Organising Committee of the Olympic and Paralympic Games (LOCOG), and is the current Chairman of the Economist Group and Heathrow Airport 

Throughout the 90s, airlines set aside their competitive rivalries to vociferously campaign to drive down charges at Heathrow – just as they are doing now. The natural instinct is to always want to pay less, but when you’re talking about Britain’s hub airport, that is a dangerous road to venture down. Ask any traveller, and they will tell you that the Heathrow of the late 90s and early 2000s was a national embarrassment. The result of lower airport charges was to cut off investment in passenger service.

Heathrow was ranked one of the worst airports in the world, plagued by persistent delays, dingy departure halls, and queues so long you’d wonder how many birthdays you might celebrate before you boarded your flight. 41 percent of passengers had delays longer than 15 minutes and 60 percent of our passengers reported that their journeys didn’t meet their standards.

In 2006, Heathrow’s current shareholders took over and we decided we wanted to do better. It’s true, Heathrow is a private business owned by a group of shareholders from across the world and right here in the UK, many of whom rely on stable dividends to pay pensions – including the pensions for Britain’s university lecturers. We believe that for Heathrow to succeed, we need to deliver a good service for our passengers. That’s why our mission is “to give passengers the best airport service in the world”. Every day, we focus on providing a good service to passengers, who in turn then choose to travel through Heathrow and support the flights that underpin the trade, tourism and investment that grow our economy.

When I led the 2012 Olympics, one of my biggest concerns was whether Heathrow would be able to cope with arriving and departing Olympians. As it turned out, Heathrow coped brilliantly, and that was the first evidence of the turnaround. More and more people were choosing to fly through Heathrow, from 67m in 2006 to 81m pre-COVID. Cargo grew by 16% delivering the trade and tourism critical to the UK’s success on the world stage.

Yes, airport charges increased, but it kickstarted a £12bn investment programme in passenger service that has delivered a better, more resilient and passenger-focussed hub airport that Britain can be proud of. Now, over 80% of flights depart within 15 minutes of schedule and over 80% of passengers have a “very good” or “excellent” experience. Passengers now rank Heathrow as one of the top 10 airports globally.

In what should be viewed as one of the greatest infrastructure success stories of our time, all of this was delivered without a penny of taxpayer money. The stability of the Civil Aviation Authority’s regulation is what unlocked that private investment. The RAB-based model which the CAA uses has been so successful in attracting long-term private investment that the Government is using it deliver other major national projects like nuclear energy.

That’s not to say that there isn’t room for improvement in the regulatory model – it has been a hard road for the investors who made this possible. Heathrow shareholder returns have been negative in real terms since 2006 and most years we have not been able to pay any dividends. But it has delivered clear benefits for passengers. The Government should be incentivising private investment to reboot the economy, but to do that on the scale needed, they will need to make sure investors are able to get a fair return.

The airport charge has also allowed us to invest in boosting Britain’s regional connectivity. We see first-hand every day the economic catalyst a connection to Heathrow provides a community in the UK. It drives increased inward investment and more inbound tourism, as well as supporting Britain’s great exporters to trade in global markets. That’s why in 2017 we introduced a discount for domestic passengers to cut the cost of flying within the UK. We are the only UK airport to offer a domestic discount to support connectivity across the UK and beyond. The pandemic hit us hard, but despite losing over £4bn so far from COVID, we have continued to offer a discount for domestic flights.

We were also one of the leading voices calling for HM Treasury to cut domestic Air Passenger Duty – which is now set to come into force early next year. When the pandemic gave opportunities for new airlines and routes to be served on a temporary basis, we pushed the Government to support measures that would allow these new entrants the ability to continue to operate, even when existing airlines began to return. We also continue to urge the Government to use new powers it has gained after Brexit to protect capacity at the airport solely for domestic services to ensure that no part of the UK is cut off from the benefits of a hub connection.

Meanwhile, airlines have grown profitable route networks – 6 of the 10 most valuable routes in the world start at Heathrow, and there are over 30 keen to start operating there if there were spare slots. Indeed, since 2012, airlines have used Heathrow’s price cap and the capacity constraints at the airport to generate an additional £25bn in extra airfares from passengers. The best way to level-up and promote Global Britain is to deliver a great service for passengers today, and to expand the UK’s hub airport as soon as possible. No surprise that some of these same airlines are against this, because more capacity means more competition, putting downward pressure on the ticket prices they can charge.

Over the next five years, we plan to invest £4bn in passenger upgrades – things like a new baggage system for Terminal 2 and streamlined security so that you can keep your liquids and laptops in your bags. All of this can be delivered without passengers paying a penny more on ticket prices. The truth airlines don’t like to mention is that unlike Heathrow, which has its prices capped, they set their airfares on what the market will bear, not on their cost base – and passengers will have noticed that airfares have gone up by as much as 100% so far this year.

A higher airport charge would deliver clear benefits for passengers, but reduce airline margins slightly – that’s why they argue against it. What was true in the 90s is just as true today – just because airlines argue for a cheaper plan, that doesn’t mean it delivers anything but trouble for passengers. Underinvestment means queues, delays and a reputation for hassle.

In the end, the CAA will decide what is best for passengers, while ensuring Heathrow has the minimum cashflow required to deliver it, based on the evidence it has gathered for over two years. We will continue to focus on delivering a great service for our passengers, particularly as we ramp-up for the summer travel season. We encourage our airlines to focus their efforts with us on working together to get people away on their journeys as smoothly as possible. That is what is in the best interests of passengers.

New event: ‘Back to Business – reopening international travel’, with Grant Shapps

15 Apr

We are very pleased to invite you to ConservativeHome’s next live online event, in which our special guest Grant Shapps, Secretary of State for Transport, will be joined by a distinguished panel for this timely discussion.

Following the recent publication of the Global Travel Taskforce report, there are a host of crucial questions to explore, from the return of tourism and business travel, to the reunification of families separated by the pandemic.

When and how can international travel reopen? What approach offers the best route to do so safely, promptly, and to the greatest benefit for passengers and the wider economy? After a year of unprecedented disruption, how soon will things return to normal, and what will normal look like?

In this event, hosted in partnership with Airlines UK, the Secretary of State will be joined by:

Keith Glatz, Vice-President of Airlines for America and
David Evans, Group CEO of Collinson Group, the UK’s leading provider of Covid-19 travel testing.

The event will be broadcast live via Zoom at 7pm on Tuesday 20th April.

As ever, there will be the chance for the audience to put your questions to the panel.

Click here to register for your free ticket.

Richard Holden: On Wednesday, Sunak needs to display as much confidence in Britain as local publications are showing in North West Durham

6 Jul

Richard Holden is MP for North West Durham.

The Dairy Barn Cafe, North Bitchburn

As Saturday approached, you could feel the febrile excitement and demand for “the story” across the media. Television news and radio bulletins boiled over with predictions of carnage on Saturday night. The broadcasters and papers were eagerly anticipating Freshers Week-esque scenes of drunken debauchery as the public decided to get wasted in a post-lockdown bacchanal.

In North West Durham, I spent Saturday evening visiting the: Duke of Wellington, Consett Rugby Club, the Wheatsheaf in Leadgate and finally the Black Lion, my local in Wolsingham. I’m afraid that I must report that calm and friendly were the orders of the evenings – as it appears were the scenes across the rest of the country too.

Tog, the landlord of the Duke, four doors down from my office on Medomsley Road, took me to his beer garden to show me a mural he’d commissioned during lockdown from a local artist. Sarah-Jane, at the Black Lion, had me take a peak at how she’d transformed her beer garden from a flagged smoking area to a lively and welcoming garden of tables, tasteful lighting and colourful plants and flowers.

It was superb to see responsible local businesses at the heart of their communities investing in their businesses, and ensuring a safe and socially distanced experience for their customers. This hope of better things to come from local firms, with small but significant investments in themselves, is really welcome at a time when I know so many people are not only worried by the virus, but also about their jobs and their incomes.

However, in many sectors of the economy the broad economic impact of the global Coronavirus pandemic is coming through hard, and is reflecting just how interconnected demand is across our economy.

To give one example: at first as the crisis broke, I had travel agents and their staff get in touch. Then came had pilots and crew from Easyjet and British Airways based at Newcastle airport, as the airlines cut back. More recently, I’ve been in touch with a local manufacturing firm which makes inner parts for the wings of Airbus planes, and which is having to lay off half its staff (some of their factories across the UK have closed completely and will not re-open).

Very quickly, the lack of ability to – and demand for – travel has led to manufacturing job losses well down the chain. It’s clear that some sectors have been far more badly affected than others, and that base consumer demand is having a rapid knock-on effect.

Looking out of the panoramic window of the just re-opened Dairy Barn Café, I can see right up Weardale, and am reminded of a conversation I had early in the last election campaign. “Remember, we’re the working dale, Richard” a man in late middle-age in local authority housing in Stanhope had said to me.

At the time it made me think of where I grew up on the other side of the Pennines – walking up Pendle Hill in Lancashire 20 years ago, and looking south to the mill towns of East Lancashire nestled in the valleys below. Working towns like Burnley, Colne and Accrington which have since switched to electing Conservative MPs.

As the furlough scheme, which protected so many jobs at the height of the lockdown is wound down, we’ve got to do everything we can to help return demand to the economy – the demand that comes from confidence in the future. Demand that means work for decent working people up and down the seats of the ‘Blue Wall’.

This confidence and positive view to the future is not something anyone’s hearing from the Labour leadership under Keir Starmer. The best thing he could muster last week was to suggest that the Government was giving “mixed messages” by saying, “get out and about, have a drink, but do so safely”.  Which shows that he’s struggling to get cut-through – especially when the man in the village pub in County Durham is by and large is doing exactly what the Government has suggested.

Labour’s shambolic response to getting children back to school, by saying one thing nationally and another in Labour-run local authorities, certainly inspires no-one with confidence – except a growing confidence that Sir Keir is a political opportunist. He was, after all, remarkably quiet on anti-semitism under Jeremy Corbyn, in order to keep hold of Momentum votes for the leadership. And he tried to play both sides with Labour’s disastrous “we’ll accept the result, but negotiate a new deal, and then have a second referendum” policy on Brexit.

Perhaps most interestingly, this weekend marked the first time that any constituent has mentioned the Labour leader to me unprompted. She was a former Labour voter who switched to the Conservatives in 2017 (and had managed to convince her husband to do so in 2019), and it was clear that, after being initially open-minded, the new Labour leader was leaving them increasingly cool.

The Government has done well in giving support to business and jobs – Rishi Sunak has certainly won fans across the country for that. But without wanting to pile too much pressure on the Chancellor ahead of his statement on Wednesday, we’re all only as good as our most recent decisions in politics.

As we move out of the initial stages of lockdown, Rishi’s decision must be to put confidence as much confidence and therefore demand back into the economy – especially in hard hit sectors – as he can. Everyone knows that it’s going to a difficult time and no-one expects the Government to get everything a hundred per cent right, but voters do expect us to really try.

And in doing so over the next few weeks and months, the Government has got to show the confidence in Britain that my local publicans in North West Durham are showing. And, as they press ahead with “levelling up” their pubs, we must also keep that long-term goal in mind too for the North.

Confidence is the thing that underlies every relationship with the state that we have – from policing with consent to the value of the fiat currency in our pocket. Confidence that governments have the people in mind and the ability to deliver is what keeps them in office.

The electorate here in County Durham and in the mill Towns of East Lancashire took us into their confidence and bestowed their votes upon us. Despite the difficulties of the pandemic, the Government has supported people. Now our task is to give our businesses the confidence to look to the future positively, which will in turn give the people who work for them the confidence to invest and spend in a virtuous circle, bouncing forward out of the fear of recent months and towards the hope of a brighter future.