Speech

Aviation Club lunch

Discussing the topics of aviation strategy and Iceland ash cloud.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Philip Hammond MP

It’s a pleasure to be joining you this afternoon. It’s now just over a year since the coalition came to office. Just over a year since I somewhat unexpectedly - at least to me - became Transport Secretary. And just over a year since the new government set out its priorities very clearly: cutting the deficit, re-establishing sustainable growth and reducing carbon. And, with that cue, it was pretty straightforward for me arriving in my new department to define my objectives for the Department for Transport: to ensure that the transport agenda supports economic growth, while contributing to deficit reduction and carbon reduction. And the challenge for my department, in particular, is to demonstrate that ‘supporting economic growth’ and ‘reducing carbon’ are not mutually incompatible aims.

Nowhere more so than in aviation. Virtually the first act of this government was to announce the scrapping of the third runway at Heathrow - an act which will have come as no surprise to anyone who had read the Conservative or Liberal Democrats manifestos, but which I know many in your industry nonetheless felt was loaded with hostile symbolism. It was not. I made clear at the earliest opportunity - and I want to do so again today (9 June 2011) - that this government is not and at least, so long as I am Transport Secretary, will not be, ‘anti-aviation’. Far from it.

It understands that the aviation sector is an important part of the economy in its own right - sustaining tens of thousands of jobs - but even more critically, that aviation supports economic growth and the generation of wealth across the whole economy. If we ever had any doubts about our dependence on aviation, the closing of our airspace for 5 days last year will have dispelled them. So we clearly understand that, if our economy is to grow, aviation must also be able to grow. We surely share the starting point. But we are also clear that, with the challenge of global warming as stark as ever, even if attention is understandably focussed at the moment on the short-term economic challenges, that growth cannot be at any cost. So we - the industry and government - must work together to define a growth strategy for aviation that will support UK economic growth, but which will also support the delivery of our decarbonisation commitments.

That is why we have committed to delivering a new ‘Aviation strategy’ - and have published a scoping document, setting out our views on the issues that strategy needs to address. Beginning, I hope, a new chapter in the aviation policy debate. In particular, we must find new ways to incentivise the decarbonisation of air travel - and encourage investment in low-carbon technologies and fuels. Ensuring we can lead the global debate and shape a low-emission aviation sector of the future, without disadvantaging UK airlines or UK airports.

While the inclusion of aviation in the European emissions trading system next year is an important step, it is not clear that it alone will provide sufficient incentive to drive innovation quickly or deeply enough. We will continue to work with ICAO and the UN Framework Convention on Climate Change to push for international agreement on aviation emissions, ensuring that the playing field is level as quickly as possible. We saw a step forward - albeit a modest one - last year when ICAO adopted an aspirational goal for stabilising CO2 emissions from 2020.

With the environmental framework increasingly constraining the shape and direction of aviation growth, it is clear that, if we are to continue enjoying the significant benefits of a growing, deregulated aviation industry, then we need to put aviation on a more sustainable footing. So our policy framework must support economic growth and protect Heathrow’s status as a global hub. But it must also address aviation’s effects on climate change and its impact on local communities. A tall order you might think. Growing the sector, while decarbonising - and all within the constraints we face on local environmental impacts - primarily noise. So, I want to explore with you what the industry expects technological change to be able to deliver, over the next thirty or forty years - on carbon, on noise, on air quality - and on what timescale you expect those development to be made.

This is a resourceful, innovative industry, and I am convinced that there is a solution to these challenges -providing the headroom for growth as first trading, and then technology, provides the answer to the carbon challenge - while the continued progress of engine design will, over time, create headroom for growth by reducing per flight noise impacts. It is vitally important that we get this strategy right, and I have set the timescale for this exercise to ensure that the views of all parts of the industry are properly heard and that all the issues can be fully explored. So we do not expect to publish our new ‘Aviation strategy’ until 2013, but by taking the time that is necessary, we will ensure the outcome is a positive and enduring policy framework that will deliver the benefits of a flourishing air transport sector, while also meeting our environmental goals. In the meantime, there are many more immediate challenges to face - on safety and security, on improving the passenger experience, and on making the best use of existing capacity.

Ash

The most recent challenge we have faced has been the unwelcome eruption of the Grimsvotn volcano in Iceland. Our response this time was much more measured and effective than last year, and meant we could avoid the blanket closures of airspace that we saw twelve months ago. That does not mean we cannot do better next time. Together with better data on the height and concentration of ash, and a much improved understanding of the effect of ash on aircraft, we benefited from a much improved regulatory safety regime. This allowed airlines to fly in predicted concentrations of ash which last year would have seen airspace closed.

The urgent need now is to improve the quality of input data to the ash dispersion model. Using a feedback loop from the observed actual distribution and concentration of ash to reassess the interpretation of the at-source data in the modelling inputs. By improving the quality of input data to the model, we can expect progressively more accurate outputs and better informed decisions. That is why I announced last week that I have asked the government’s Chief Scientist, Professor Sir John Beddington, to chair a peer review group to work with the Met Office to establish how best to use the actual observation data to refine inputs to the model.

Improving the predictive accuracy of the model must be our top priority. But in the meantime, we need to widen the range of inputs the CAA uses in establishing red zones, where ash is forecast to be above the 4,000 microgram level, so they are not simply mechanical extrapolations of the dispersion model. So the CAA has established a Volcanic Ash Advisory Group, comprising representatives from the Met Office, and airlines, working together to develop an improved methodology to analyse data from a range of sources to produce an accurate, real time, working picture of developing ash concentrations - which will inform the definition of the Red Zone in future events. I am confident this approach will further, significantly, reduce the impact of future ash events on aviation. We hope to reach a broad international agreement on this revised two-pronged approach quickly. Working together, we can satisfy the passenger’s twin demand for safety and convenience, while avoiding the significant economic costs of airspace closures.

Security

The need for collaboration is not, of course, limited to unexpected events like volcanic eruptions. Routine issues of aviation security also remain an evolving challenge where we need a co-ordinated approach. And we are in the process of developing a new aviation security regulatory system where the government concentrates on setting the security outcomes that need to be achieved, while freeing up operators to devise the processes needed to deliver them, within the constraints of EU requirements.

We will be consulting with the industry on this approach later this year, but, in the meantime, we are undertaking a limited ‘call for evidence’ exercise which aims to better understand the potential savings, costs and wider benefits of this new regulatory approach. I look forward to your contributions to this process. Meanwhile, we will continue to work in partnership internationally to tackle the ever-changing terror threat. Most recently, this has focussed on inbound cargo, where it was clear that weaknesses existed, had been identified by the enemy, and were very nearly successfully exploited.

I welcome the package of proposals around cargo security that the EU has put forward. I am disappointed that yesterday’s vote failed to secure a majority in favour of this package. This is a clear example of where action at a European level will be in our national interest. We will continue to press for a pan-European approach on inbound cargo. But in the meantime, my officials will work with UK airlines to ensure that we have in place for the UK a system that is risk-based, proportionate and effective.

Passenger experience/protection

The safety and security of airline passengers must be the first priority of both government and the industry, but we all recognise that the passenger experience goes far beyond this. And as customer expectations, and the industry itself, evolve, so too must the framework for the economic regulation of our main airports, which is now 25 years old. Our philosophy is clear: the change that is needed must be achieved not through micro-management by regulators, but by properly alignment of economic incentives. So in the next session of this parliament, in the spring of next year we will legislate for a new regime that will significantly enhance the quality of service that airlines and passengers receive - by aligning the operators’ economic interest more closely with that of passengers, and the airlines who carry them.

The new framework we propose will encourage improvements, incentivise investment, focus on the needs of customers, and ensure that passenger benefits are delivered with the minimum of regulatory interference. Ensuring that London’s airports give a positive first impression of the UK to arriving visitors, and leave the right image in departing passengers’ minds. Meanwhile, our South East Airports Taskforce - which is looking at ways to make the best use of existing airport infrastructure - will report in July, and I am grateful to everyone in the industry for their commitment and input to that process.

Equally important to passengers is ensuring that we deliver the right kind of protection when things do, occasionally, go wrong. That means greater resilience at airports - which we will achieve through the reformed economic regime. And modernisation of the current outdated ATOL scheme, which was poorly understood by passengers. We will be launching our consultation on ATOL reform shortly. And at the European level, I welcome the fact that the commission intends to look again at regulation EC 261.

I think we would all agree that the establishment of common rules on compensation and welfare support for passengers was an important step forward. But I am equally clear in my own mind that there is no such thing as a free lunch - and with the cost of flying lower than ever before, I am unconvinced that generous, fixed-sum passenger compensation, which bears no relation to ticket price, can really be in the long-term best interest of passengers or a diverse and competitive industry. I shall be continuing to urge the commission to find a way forward that is fair to passengers, simple to operate, and easy to understand. As well as being in line with our goal of a strong, prosperous and competitive aviation sector.

Conclusion

So in the coming months, there will be much for us to discuss as we work to map out a sustainable growth strategy for aviation in the UK - while dealing with some of the more immediately pressing issues along the way. There will be further challenges, and, doubtless, further disagreements, ahead - no doubt about that. I have come to appreciate the forthrightness with which your industry’s more colourful characters like to express their views. But I have also learned that this is a resourceful, innovative, flexible, and fast responding industry - able to deal with a difficult and fast moving environment. I repeat my desire - the government’s desire - to see the aviation sector prosper, and our determination to work with you to make sure that can happen, while delivering our environmental goals. I can promise you that I will engage with you with an open mind and an open door, as we work through the key policy challenges in the months ahead. And I am confident that, by working together, we can build a strong and prosperous future for this vitally important national industry.

Thank you.

Published 9 June 2011