York Aviation STANSTED AIRLINES CONSULTATIVE COMMITTEE

Transcription

1 ACC/22 York Aviation STANSTED AIRLINES CONSULTATIVE COMMITTEE Appeal by BAA Ltd and Stansted Airport Ltd against the Refusal of an application for Planning Permission pursuant to Section 73 of the Town and Country Planning Act 1990 APP/C1570/A/06/ /NWF STANSTED GENERATION 1 SUMMARY OF EVIDENCE LOUISE CONGDON June 2007 DM_EU: _1

2 York Aviation is a member of:

3 Louise Congdon Summary of Evidence Introduction and Scope of the Evidence 1. My evidence has been prepared at the request of the ACC in connection with the Public Inquiry into the application by BAA Ltd and Stansted Airport Ltd to expand the use of Stansted Airport by removing Condition MPPA1 and by varying Condition ATM1. This summary covers both my original Proof of Evidence and my Rebuttal Proof of Evidence and brings together the key points of my evidence, updated in the light of evidence now before the Inquiry. I also deal with the outcome of my discussion with Mr Maiden regarding the forecasts of passenger demand for Stansted. 2. The ACC s position is that it supports cost effective and efficient expansion of capacity at Stansted Airport on a planned incremental basis, subject to proper consultation and agreement with users, towards achieving best use of the existing runway in line with policy as set out in the Future of Air Transport White Paper 1 (ATWP). I expand on the key statements of policy below. 3. The ACC considers that BAA s proposals are unsound. BAA has a poor track record in projecting growth requirements at Stansted, creating uncertainty over the need for and true impact of the proposals which, coupled with perverse regulatory incentives to over specify investment needs, will result in the achievement of cost effective development of both G1 and the G2 project at Stansted in the longer term being compromised. If new facilities are built when they are not and may never be needed either because demand does not materialise or because they are not required if a properly specified G2 development proceeds, there will be an inefficient use of the valuable land resource at Stansted. 4. There is a link between the planning and regulatory processes in that, if planning permission is granted to increase the passenger cap to 35 mppa, the CAA is much more likely to allow the cost of those schemes, said by BAA to be necessary to increase capacity to 35 mppa, to continue to be included in the Regulated Asset Base (RAB), which will lead to a greater increase in airport charges than would otherwise be the case. In those circumstances, rather than encouraging higher growth, demand will be reduced, and the net result will be contrary to the policy to achieve the best use of the existing runway. 1 CD/87, Future of Air Transport White Paper, para York Aviation LLP 1

4 Louise Congdon Summary of Evidence 5. In order to ensure that development is proportionate and appropriate to meet the needs of users, the ACC has proposed that an interim limit of 30 mppa be imposed at Stansted, based on the existing limit on air transport movements (atms). The purpose of this is to ensure that BAA is incentivised to use land efficiently, and that development is sustainable and takes place only when necessary. Provision of capacity before it is needed and in a manner which results in such capacity being underutilised is not sound planning. Planning Policy 6. I stress that, at the core of the planning system, is the requirement for development to make efficient and economic use of land. The principles are set out in PPS1. 2 The Future of Air Transport White Paper (ATWP) 7. It is important to look at the ATWP in its entirety. The ATWP variously uses the expression best use of Stansted s existing runway 3 and full use of existing facilities 4. The Secretary of State for Communities and Local Government has used the expression maximum use of existing facilities in making amendments to the East of England Plan to bring it into line with the ATWP 5. However, whatever expression is used to define best use, a key point arising from policy as set out in the ATWP is that development at Stansted should proceed to meet demand as it arises 6. The ATWP makes clear that provision of capacity at Stansted and the achievement of full use of the existing runway is not an end in itself but is inextricably linked to meeting demand. The test set out in policy is not a theoretical one about maximising capacity but a practical one of meeting actual demand as it arises. 2 CD/92, PPS1: Delivering Sustainable Development, para 1. 3 CD/87, Executive Summary, page 13, para 11.6, para Ibid, para CD/76, East of England Plan, Secretary of State s Proposed Changes para 4.32 (Explanatory text to Policy E8) 6 CD/87, para York Aviation LLP

5 Louise Congdon Summary of Evidence 8. The ATWP is clear that the provision of new airport capacity is not to be considered in isolation or granted for its own sake, but must be tested by reference to the demand it is intended to serve as I have set out above. Provision of capacity without having demonstrated that it is needed and is timely would not be a sustainable or efficient land use approach as required by sound planning. I consider that this argues for an incremental approach to ensure that capacity is brought forward in a manner which allows full economic use of the existing runway to be achieved. It is not simply a matter of removing the capacity restrictions, in this case the passenger and air transport movement caps, but of ensuring that growth in demand will be met as it arises and that the economic conditions are right for best usage to be achieved. Premature and unnecessary development, which may also prejudice the achievement of an efficient and sustainable solution for the development of the second runway, would also be contrary to policy. 9. Furthermore, the ATWP places specific emphasis on the development of Stansted being brought forward in a way that is responsive to users 7. I understand this to mean that the development of Stansted should be brought forward in a way which ensures that airlines are able to operate air services to allow passenger demand to be met. The ACC does not consider that the current application, on the basis put forward by BAA, is responsive to user needs such that, as a consequence of permission being granted, development of facilities would be brought forward in a manner and at a cost which would result in passenger demand growth being curtailed and need not being met. 10. Mr Rhodes in his Proof of Evidence for BAA is selective in his references to policy documents. I agree with Mr Rhodes that the policies within the ATWP are a significant consideration in determining this application but I do not accept that policy support for achieving the best use of the existing runway can be taken in isolation from the clear criterion that such development should meet the needs of users as I have discussed above. 11. The Future of Air Transport White Paper (ATWP), makes clear that the we must make best use of existing airport capacity 8 and that making full use of Stansted would generate large net economic benefits. To the extent that premature or unnecessary expenditure is planned by BAA, this will increase costs to users, so reducing the claimed economic benefits from the development, contrary to the objectives of policy. 7 CD/87, Box on Page CD/87, Foreword York Aviation LLP 3

6 Louise Congdon Summary of Evidence 12. Mr Rhodes seeks to add weight to the ATWP policy to support the best use of existing infrastructure at Stansted by reference to the SERAS consultation process 9. However, in terms of the maximum use of Stansted s existing runway, the scenario consulted on was for up to 26 mppa 10 by 2030, with the full maximum capacity of the runway at 35 mppa not being achieved until a substantially later date, if at all. The balancing of benefits and impacts within the SERAS consultation was based on the maximum use scenario of 26 mppa. Hence, if anything, reliance on the SERAS consultation exercise argues for an incremental approach, as put forward by the ACC, in terms of an interim cap of 30 mppa, whilst the need for and implications of longer term development are considered further through the planning system. The Future of Air Transport Progress Reports (ATPR) 13. Whilst the ATPR states that the timing of development at Stansted is a commercial decision for the airport operator, affected by decisions on price capping by the CAA 11, the ATPR cannot be read without reference back to the policy as set out within the ATWP. As I have already stated, the commercial viability of the development is related to the willingness of users (airlines) to fund the costs of development. The ATWP and ATPR make clear that projects must be economically justified, i.e. that users must be willing to pay for them. Securing cost effective development, which is at the core of the ACC s case, is fundamental to ensuring that growth at Stansted delivers the benefits envisaged by Government in the ATWP and meets the tests set out in policy. Regional Spatial Strategy (RSS) 14. The draft East of England Plan makes clear that policy towards airports is set out in the ATWP, including making maximum use of existing facilities at Stansted. However, in amending the plan, the Secretary of State for Communities and Local Government has stressed that it is the responsibility of airport operators to bring forward development plans in conjunction with partners 12, meaning that much less weight should be attached to proposals which come forward without the support of partners, such as the ACC. 9 Future of Air Transport Consultation Document: South East, CD/113, and supporting studies 10 CD/235, SERAS Stage 2 Report, Table CD/87, ATWP, para CD/76, Secretary of State s changes to the East of England Plan, Policy E8 4 York Aviation LLP

7 Louise Congdon Summary of Evidence Essex and Southend-on-Sea Replacement Structure Plan The existing Structure Plan policy makes clear that development at an airport cannot be considered in isolation from whether such development meets the air travel needs of residents [and] businesses. 13 This policy also makes a link to meeting the travel needs or demands of the area rather than simply the provision of airport capacity for its own sake. Uttlesford Local Development Framework 16. The Uttlesford District Local Development Framework draft Core Strategy Policy Choices and Options for Growth, makes clear that there are uncertainties surrounding the development of the Airport up until These uncertainties need to be tested by reference to the demonstrated need for development as expressed by the objective of meeting demand as it arises. 17. Accordingly, the main policy documents make clear that the development of Stansted must be brought forward to meet the express needs of users and must be responsive to meet demand. Further, sound land use planning principles require that only development which results in efficient and economic use of land should be allowed. 18. In the light of policy, it is not appropriate to simply lift or remove the cap without reference to whether doing so will enable the airport to more efficiently and effectively accommodate passenger demand. This means that, in making this decision, full account needs to be taken of all the consequential infrastructure which will be brought forward on the basis of the decision granted, including: infrastructure required as a result of any Section 106 obligations; infrastructure which does not yet have planning permission; and infrastructure which already has planning permission but which will only be developed consequent upon the decision. The nature and scale of infrastructure required to meet the specific types of passenger demand, for example, low fares, long haul, etc at Stansted is a relevant consideration. 13 CD/59, Policy BIW9 14 CD/58, Strategic Objective 23 York Aviation LLP 5

8 Louise Congdon Summary of Evidence 19. A key consideration is whether the delivery of this additional infrastructure will be carried out in an efficient and timely way. This is a matter for the planning system and cannot be left simply to the airport regulatory system, irrespective of whether the regulatory system is working effectively. Regulatory context 20. Stansted is presently a designated airport, subject to a cap on airport charges determined at 5 yearly intervals by the Civil Aviation Authority. 21. The scale of the existing and planned asset base at an airport is a fundamental driver of the level of charges allowed under the RAB based form of regulation. BAA is allowed to earn a return of 7.75% per annum on the planned capital expenditure within a quinquennium regardless of whether the expenditure is made or not. 22. The grant of planning approval for development is a material consideration when the regulatory authorities are considering what should be allowed into the RAB. I do not agree with Mr Rhodes that this is a matter solely for the CAA as I set out below. Capital Expenditure at Stansted 23. BAA sets out its capital expenditure requirements each year in a Capital Investment Programme (CIP). BAA has underspent by 40%, or about 158 million, against the capital expenditure forecast for the current quinquennium ( ), which included developments necessary, according to BAA, to enable the Airport to handle 25 mppa, including substantial schemes which are only now being brought forward to enable the Airport to handle over 25 and up to 35 mppa. 24. It is much more likely that the costs of a physical development scheme will be included within the RAB if it has been granted planning approval. The costs of unnecessary developments, such as the Terminal Arrivals Bay and Standby Runway, were included in the RAB at the last review in 2002 on the basis that the developments had already been approved for a 15 mppa airport and that the cap on passengers was about to be raised to 25 mppa, necessitating such developments. It must be remembered that at the time of the review, a resolution to approve the raising of the passenger limit was in place, subject to a Section 106 agreement. 25. The cap on airport charges in the current quinquennium has been set at a level higher than was necessary to cover the actual capital investment costs which BAA has needed to incur to meet the needs of the users of Stansted. Clearly: 6 York Aviation LLP

9 Louise Congdon Summary of Evidence BAA has an incentive to overstate what it needs to build in terms of realising additional returns during each 5 year period; BAA has a poor track record of predicting what it will actually need to build to handle the demands of its user airlines and their passengers; The higher the passenger and movement cap granted by planning approval, the more likely BAA is to bring forward developments which are not required by users, in contravention to the principles set out in the ATWP set out above, and which result in inefficient use of land. 26. For the future, an incremental approach is necessary to ensure that the most efficient and economic development takes place. The ACC s proposal for a 30 mppa cap is a proportionate response by the planning system to meet the needs of the airport over a sufficient timescale whilst, the longer term and fundamental planning issues, particularly the G2 development, are addressed. It would also make inefficient use of land less likely and ensure that the costs of premature and potentially unnecessary schemes are not taken into account in calculating airport charges, enabling passenger demand growth at Stansted to be met as it arises. Shortcomings in the Regulatory Regime 27. It has been recognised by the OFT and CAA that the RAB based approach to regulation of airport charges can lead to perverse incentives on BAA to bank planning approvals for developments which it does not need for the sole reason of being able to include the associated expenditure within the RAB and, at the end of each quinquennium, to proceed with developments which are not needed by users so as to ensure the expenditure is retained within the RAB. 28. It should be noted that the OFT has recognised the failure of the regulatory system to deal with these issues: in particular, BAA has an incentive to make investments justifying higher charges to airlines 15. The OFT s referral of BAA to the Competition Commission states that a key objective for the investigation is to secure delivery of extra capacity in a timely and cost effective manner. 16 The issue raised by the ACC in these planning proceedings is not whether the provision of capacity itself distorts competition, as suggested in BAA s opening statement 17, as this is a matter for the competition authorities. Rather, the issue here is whether the provision of capacity is timely and cost effective to meet passenger demand as it arises and in accordance with users needs. This requires scrutiny in the planning as well as the regulatory system. 15 CD324, BAA, The OFT s Reference to the Competition Commission, para Ibid, para Ibid, para 73. York Aviation LLP 7

10 Louise Congdon Summary of Evidence 29. This has to be seen in the context of the recognition by the OFT that The appropriate timing and specification of investments are extremely difficult for a regulator to assess. 18 In particular, the planning system is the appropriate place to consider the phasing of development to ensure that consequential effects of development are taken into account. The planning system, as distinct from the regulatory system, can put in place arrangements which control, through conditions and agreements, the pace of development. 30. The ACC considers that a passenger cap of 30 mppa, rather than 35 mppa, is much more likely to secure best use of the existing runway in terms which meet the needs of users efficiently whilst safeguarding the delivery of cost effective long term development in the public interest. Such a limit would allow development to be managed on an incremental basis. Forecasts of Demand at Stansted 31. At the outset, I highlight that demand is not an abstract concept. Demand is passenger demand for travel, or demand from cargo shippers, realised through the ability and willingness of airlines to operate services to meet that demand. The need for additional airport capacity cannot be considered in isolation from whether the conditions are right for the airlines to want to use the capacity provided. If the conditions are not right for the airlines, they will not operate services, however much capacity is provided. 32. For this reason, it is important for this Inquiry to test BAA s application in conjunction with and in the context of demand, specifically to ensure that provision of capacity meets demand as it arises. 19 There is a synergy between airport capacity and the specific demand that it is designed to meet which means that both the scale and nature of demand likely to use Stansted Airport in future is relevant to the planning decision before this Inquiry. BAA needs to demonstrate explicitly that the air transport market will generate sufficient demand to warrant the lifting of the cap to 35 mppa immediately. I consider that they have failed to do so in either the ES or their evidence to this Inquiry. 33. It is not sufficient for BAA to simply state a demand target of 35 mppa without justification that such demand is likely to materialise over a given time frame. This is all the more important given that BAA s previous projections of how the Airport would grow to be handling 25 mppa and what would physically need to be built have not proved to be accurate. 18 CD/324, para CD/87, ATWP, para York Aviation LLP

11 Louise Congdon Summary of Evidence 34. It is important that this Inquiry knows the basis upon which future projections of demand at Stansted have been made by BAA and understands whether the nature of future demand projected is likely to be delivered by the airlines. Details of the type of traffic which will use Stansted affect the timing when an increase in the passenger or movement caps is required. Without this information, it is not possible to determine whether the development is efficient, proportionate and cost effective; nor is it possible to determine the scale and nature of facilities which would be required to handle increased demand in terms of the specific physical developments put forward by BAA in its CIP In the absence of proper information from BAA regarding its forecasts, it is not possible to test BAA s proposals to lift the passenger and movement caps. BAA does not present information regarding how sensitive its forecasts are to changes in the underlying assumptions. Given the uncertainties, there is a high risk that raising the passenger cap to 35 mppa now would result in premature physical development at a cost to users which would place future growth in jeopardy as well as preventing the achievement of an efficient and cost effective layout for G2 in the longer term. In these circumstances, the ACC adopts the incremental approach of proposing an increase in the passenger cap to 30 mppa, which it believes will give rise to economic conditions that will better enable the airlines to deliver demand growth than by removing the passenger cap or lifting it to 35 mppa. 36. I met with Mr Maiden on 29 th May in an effort to resolve the outstanding queries which the ACC has about how BAA s forecasts have been derived. These had been previously put to BAA in writing and had not been answered. This information is necessary to test whether BAA s forecasts represent a realistic assessment of how demand will grow at Stansted and the soundness of the need case for this development. I attach to this Summary Proof an Addendum, in which I set out those matters with which I agree and disagree with the approach adopted by Mr Maiden in preparing passenger forecasts for Stansted, together with those areas in relation to which Mr Maiden has not provided information. Attached to this Addendum is the agreed note of the meeting. 37. In order to assist the Inquiry, I summarise here the key issues regarding the forecasts for Stansted. Approaches to Air Traffic Forecasting 38. BAA adopts a top down methodology for producing its airport passenger and movement forecasts. A top down approach has been used by the CAA, DfT and myself, in the 1990s, to prepare long term forecasts for airports where the growth in traffic is expected to come largely from conventional scheduled and charter services. York Aviation LLP 9

12 Louise Congdon Summary of Evidence 39. Such top down models normally operate sequentially by: a. projecting forwards demand at a national (or regional) level; b. determining whether the distribution of that demand will change over time, i.e. whether the demand for air travel is growing faster in one area than another; c. examining, using CAA survey data on observed passenger choices between competing airports, how passengers from each area choose between airports based on the services; flights, destinations, frequencies, air fares; and access time/costs in a generalised cost formulation. This would normally be carried out route by route or market by market (e.g. Balearic Islands). The process is explained in the DfT s Passenger Forecasts: Additional Analysis 20 ; d. using algorithms based generalised costs to make an initial allocation of passengers to each airport. Allowance should be made that the elements of the generalised cost, access time, flight frequency, air fares, will be given different weightings by different passenger types (business, leisure, UK, foreign). For example, business passengers may place a greater value on higher frequency of flights than lower air fares. Generally as costs rise at an airport fewer passengers will choose to use it; e. determining whether sufficient demand exists market by market for the airlines to operate services viably for each market and estimating the frequency of service likely to operate; f. iterating the model to test whether the allocation of passengers between airports remains the same at the frequencies of service likely to be operated. This iteration process is likely to need to be run a number of times until convergence between demand and viable frequencies of service are reached. 40. As the DfT sets out in the report, Passenger Forecasts: Additional Analysis 21, conventional top down models have not proved to be particularly robust at predicting demand for low fares airline services (or No Frills Carriers NFCs) due to the way these services have penetrated new markets. The DfT, thus, added a supply-side overlay on top of its core allocation model to better reflect the generative nature of such services based on where such low fares airlines have been attracted to operate new services. I refer to this in paragraph 5.13 of my original Proof. 20 CD/232, paras. 4.1 to CD/232, paras 4.8 to York Aviation LLP

13 Louise Congdon Summary of Evidence 41. Because of the unreliability of conventional top down models in circumstances where the majority of growth is coming from the low fares sector 22, many air traffic forecasters, myself included, are increasingly adopting a bottom up approach to forecasting demand at individual airports. Such an approach takes the existing base of services at an airport and looks for opportunities for new services to be added based on the market within the catchment area of the airport and the nature of services from competing airports, taking into account the growth of the air travel market overall. New services may be increases in frequency to existing destinations or to new destinations. Based on the network at an airport a realistic view can be taken of the scope for new routes both by conventional airlines and, with stimulation of the market, by low fares airlines. Such an approach offers greater transparency and allows different assumptions about growth to be readily tested market by market. 42. I would normally expect to see a detailed forecasting report accompanying a planning application such as that for G1. This would include a description of the model used, how it has been calibrated and validated, the formulation of the generalised costs (if used), any other allocation parameters, as well as detailed predictions of passengers expected to use an airport market by market or route by route. I would expect the description of the model to be transparent so that it would be possible to test the likely effects of changing any of the input parameters, such as improvements to surface access at an airport, the effect of increased prices etc. Such reports are commonly produced in connection with Airport Master Plans and contain substantially more detail about how the forecasts have been derived than contained in Appendix 16 to the ES, the CIP 2007 or Mr Maiden s evidence. 23 BAA s Approach 43. To assist the Inquiry I set out my understanding of how Mr Maiden goes about preparing his forecasts for Stansted. His approach appears to be something of a black box by way of contrast to the orthodox approaches adopted above. Whilst all forecasting models include elements of judgement, such judgements would usually be clearly explained so that they can be understood and tested. However, in the case of BAA s forecasting model, the judgements which Mr Maiden makes are not clearly set out. 22 ACC/11, para and Figure CD/19 York Aviation LLP 11

14 Louise Congdon Summary of Evidence 44. I understand that Mr Maiden first prepares forecasts of overall demand expected to use the three BAA London airports. As discussed in the Addendum, I do not disagree with his overall approach to preparing forecasts for the London area but, as I set out below, I do not believe that his approach properly reflects how airlines will respond to the market to develop new services across the London airports, particularly in terms of the low fares airlines, which are the main users of Stansted, but also in terms of the likelihood of airlines currently operating at Heathrow and Gatwick to spill to Stansted. 45. Having prepared his forecasts of overall London demand, Mr Maiden then allocates demand, according to CAA survey data of passengers origins or destinations, to 75 surface origin or destination zones He then assigns each zone to the catchment area for an airport according to when the proportion it accounts for of that airport s total traffic is greater than the share it accounts for of any of the other airports in the system I understand that matrices are derived by which Mr Maiden determines what proportion of passengers in each airport s catchment area (as defined above) will use each of the airports, accepting that not all passengers will use the airport within whose catchment area their journey begins. Examples of these matrices are given for UK Leisure and Foreign Business passengers in Table 8.1 of his Proof. I understand that matrices are also prepared for UK Business and Foreign Leisure Passengers, such that he used four categories of passengers in total: UK Leisure and UK Business; and Foreign Leisure and Foreign Business. 48. Mr Maiden has explained that BAA predicts how the matrix might look in At our meeting, he explained that based on his feel for the markets, these matrices are adjusted for future years to reflect how the catchment area of each airport might change dependent on changes to airport access, increased capacity etc. 27 I presume that these are the rules for allocating demand referred to in paragraph 5.3 of Mr Maiden s Proof of Evidence, although this is not clear. An explanation of the bases upon which these matrices have been adjusted has not been given in his evidence. 24 Note of Meeting, para BAA/6/A, para Ibid, para Note of Meeting, para York Aviation LLP

15 Louise Congdon Summary of Evidence 49. From my understanding, this approach appears to prejudge how the addition of capacity at an airport might lead to increased demand rather than using a model transparently to predict how much demand is actually likely to arise at an airport, creating a need for additional capacity. I would normally expect the changes to an airport s catchment area over time to be the output of a proper top down modelling approach not an input as changes to an airport s catchment area are the consequences of improvements in surface access or changes in the services operated by the airlines. 50. Accordingly, at this stage of his modelling process, Mr Maiden has an allocation of passenger demand under his four categories to each of BAA s London airports. However, this is without reference to whether, market by market or route by route, there is likely to be sufficient demand for the airlines to viably operate services. 51. If, at this stage, demand exceeds capacity at any of the airports, I understand that Mr Maiden then applies his attrition factor rules. This is explained in paragraph 8.8 and 8.9 of his Proof. However, no information is given about how the attrition factors have been derived and how they work, except for the brief explanation that transfer passengers are eight times more likely to switch airports. This is important in so far as it is these rules which determine what type of traffic will spill from Heathrow to Stansted. 52. I understand that other rules are then applied by Mr Maiden to reallocate this surplus demand to other airports. No information has been supplied about these other rules. 53. Mr Maiden told me that transfer passengers are forecast separately using an econometric model which has not yet been explained Given that the allocation model as explained to me by Mr Maiden works on the basis of four types of passenger (as set in paragraph 47 above), it is not at all clear and no explanation has been provided as to how the passenger forecasts for each airport are converted into an estimate of the types of flight being used by passengers, namely domestic and international, scheduled and charter, conventional and low fares air services. Information in this form is presented in the ES and forms the basis of assessing the relationship between passengers and movements at the Airport. The mix of passengers by type of flight is fundamental to determining what sort of facilities would need to be built at the Airport, as for example low fares airlines tend to require simpler terminal facilities, whilst long haul scheduled airlines operate larger aircraft requiring additional apron areas. 28 Note of Meeting, post meeting note at para 9.1 York Aviation LLP 13

16 Louise Congdon Summary of Evidence 55. I wrote to Mr Maiden, following agreement to the note of the meeting on 13 th June 2007, to seek answers to the outstanding queries in relation to the issues set out above. A copy of this letter is attached to the Addendum. Sensitivity Tests 56. Given the lack of transparency in the presentation of BAA s forecasts, it is not possible to test how sensitive they are to changes in input assumptions, either in terms of changes to the overall rate of growth or airport specific factors, such as changes in airport charges. Mr Maiden does not explain how and why changes to assumptions would give rise to the different scales of growth implied by the sensitivity tests presented by BAA to this Inquiry in the ES. Rather, they are output sensitivity tests designed to show how the impacts of development might vary. We are not told what circumstances might lead to higher or lower forecasts than those presented by BAA as its core case. 57. The ACC requested, last year, that BAA undertake some sensitivity tests using its model to examine the effect of changes in assumptions about oil price, air fares, airport charges and the provision of additional capacity at Heathrow. These are presented in Appendix F to my Proof. 58. Because of the way in which BAA s forecasting model works, changing input assumptions appears to make little difference to the forecasts for Stansted. This is a surprising result as I consider that demand at Stansted, given the nature of its airline traffic, is highly sensitive to the airfares charged and changes in airport charges. BAA s forecasts seem to rely heavily on a view that passenger demand exists, irrespective of whether the airlines will be able to operate services viably to meet that demand. BAA s forecasts also appear to assume that, as other London airports fill up, residual demand will automatically choose to use Stansted. I do not consider this to be a realistic approach as there will be airlines for whom operations at Heathrow is the only viable option and others, such as the low fares airlines at Stansted, for whom operations at Heathrow would not be viable due to the level of costs and congestion. BAA s model appears to assume that airlines and air services are interchangeable between airports. This is clearly not the case. BAA s Forecasting Track Record 59. In the absence of the ability to properly test the validity of BAA s forecasting model, the only way to test the validity of BAA s forecasts is by reference to how well BAA has predicted growth at Stansted in the past. 14 York Aviation LLP

17 Louise Congdon Summary of Evidence 60. I illustrate the accuracy of BAA s forecasts for Stansted since the early 1990s in Figure 5.1. Figure 5.1: BAA s track record of Passenger Forecasting at Stansted 25 mppa Actual BAA 1991 BAA 1995 BAA 2002 CIP 1998 CIP 1999 CIP 2002 CIP 2003 CIP BAA s early forecasts for Stansted based on an overspill role and growth by full service scheduled airlines were 58% too high. 62. Since the growth in low fares services, BAA s forecasts for Stansted have been up to 63% too low because BAA has failed to understand the extent to which these airlines have stimulated growth in the air travel market overall. 63. Despite evidence that growth at Stansted is subject to its own unique set of drivers arising from low fares airlines attracted to Stansted by low airport charges, BAA continues to suggest that, in future, growth will be driven by overt spilling of services from Heathrow and Gatwick to Stansted, resulting in a changing mix of traffic over time. The likelihood of this happening has not been demonstrated by any evidence of the demand drivers which will bring it about, either by Mr Maiden, SH&E for UDC or Mr Forbes for SSE. CIP 2007 Forecasts and the ES Forecasts 64. The CIP 2007 provides revised passenger forecasts for Stansted, set out in Table 5.1 of my original Proof. York Aviation LLP 15

18 Louise Congdon Summary of Evidence Table 5.1: BAA s Current Passenger Forecasts for Stansted (mppa) Financial Year CIP 2006 CIP / / / / / / / / / / / / Source: BAA CIP The forecast for 2007/8 has increased over that contained in CIP Thereafter, growth is expected to be slower than previously forecast, with 35 mppa reached later than predicted in the ES. On the basis of BAA s forecasts, 30 mppa will not be reached until 2012/3. An interim cap of 30 mppa would, hence, allow sufficient time for the longer term issues regarding the development of Stansted to be resolved. Current Traffic Performance at Stansted 66. Assessing the extent to which forecasts at Stansted are likely to be reliable should be informed by current performance at the Airport. In 2006, Stansted Airport handled mppa, up 8% on 2005, and 224,312 tonnes of freight, down 5% on 2005, on 189,995 atms, of which 10,964 were cargo atms. The Inquiry has been presented with no evidence about how BAA s forecast of air freight growth will come about. This is significant given that changes in the number of cargo ATMs is part of the difference between the with and without permission cases and that substantial development of cargo facilities is included within the CIP In 2006, easyjet and Ryanair carried around 82% of total passengers handled at Stansted. Long haul scheduled services carried only 0.4% of total passenger demand. Approximately 12% of passengers were transferring between flights in This confirms the importance of the low fares airlines in terms of driving growth at Stansted and, hence, the type of facilities which are required in future due to the efficient use which they make of airport infrastructure. 16 York Aviation LLP

19 Louise Congdon Summary of Evidence 68. More recently, as a result of the combined impact of increases in air passenger duty (APD) and a doubling of actual airport charges, growth in demand at Stansted has reversed, with traffic in April 2007 being 3.4% less than the previous year, some 7% below the rate of growth implied in the CIP 2007 forecasts. Demand in May 2007 was 1.2% below May last year, some 5% below the CIP rate of growth. It should also be noted that the effect of the downturn in traffic has been lessened by the aggressive price promotion campaigns undertaken by the airlines in an attempt to recover lost demand. This highlights the danger of allowing development, which is not cost effective, to proceed as the resultant increases in airport charges lead to the increased demand to use such facilities not materialising. Key Points on Forecasts 69. There are material differences between the forecasts set out in the ES and those now disclosed in CIP Given BAA s track record in terms of forecasting demand at Stansted, these discrepancies have not been adequately explained. There are also critical areas of uncertainty relating to: the extent to which long haul traffic will develop at Stansted; the extent of transfer traffic at Stansted as a wider range of direct air services develop at regional airports; the effect of the current and potential increases in airport charges on the overall rate of demand growth. 70. In addition, the CIP presents different busy hour forecasts to those set out in the ES. The specific mix of passenger demand at Stansted, in particular, the busy hour rates, is highly material to considering the impact of lifting the Conditions ATM1 and MPPA1 as it is busy hour projections which form the basis upon which new infrastructure is actually planned. 71. My main concern about BAA s forecasts is the lack of reality in terms of understanding how airlines respond to and create demand. Other key concerns regarding forecasts are: the lack of transparency of how passenger demand is allocated between airports within the model, particularly as the results appear to be predetermined by adjustments made judgementally to the matrices upon which the allocation is based; the failure to allow for the possibility of mixed mode runway operations being introduced at Heathrow before 2015 which would result in less traffic to be spilled to Stansted under BAA s forecasting approach; York Aviation LLP 17

20 Louise Congdon Summary of Evidence the failure to adequately model the effect of increased airport costs on growth of demand generally and at Stansted specifically; over optimistic forecasts of long haul traffic which result in increased infrastructure requirements. 72. In summary, further explanation is required from BAA as to how its forecasts are derived and the sensitivity of these forecasts to changing assumptions. Only then can it be determined whether these forecasts represent a sound basis for ensuring efficient and cost effective development at Stansted. Given the uncertainty regarding the timing and nature of growth, I consider that raising the passenger cap to 30 mppa as an interim measure would be a proportionate response, so as to best ensure that land is used efficiently and development is sustainable, and so as to best ensure efficient long term development at Stansted. The Capacity Required 73. It is evident that many schemes originally specified by BAA as being required to handle either 15 mppa or 25 mppa have not been required to meet the needs of current, predominantly low fares airline, users. Major development schemes, such as the Arrivals and Departures Bays, approved as part of the 15 mppa and 25 mppa applications respectively, are not required to meet demand until well in excess of 25 mppa. 74. In the light of the ATWP policy to ensure that capacity is provided at Stansted to meet demand as it arises, setting the passenger cap at 30 mppa is a reasonable interim step towards securing best use of existing capacity at Stansted in terms of meeting the needs of users and maximising user benefits at this stage, pending full consideration, in a holistic way, of long term plans for development. This will help ensure that only schemes necessary to support that level of demand are incorporated into the RAB and that the beneficial growth of Stansted continues towards meeting the Government s objective of securing best use of the capacity available. Capital Investment Programme In many cases, it is simply not clear when or if many of the developments will actually be required and under what circumstances. I have used the CIP 2007 to draw up a list of what schemes contained within it would be required to handle 30 mppa and which are not required to meet demand up to that level over the short to medium term. The schemes required and not required are set out in Table 2.1 and 2.2 and illustrated in Appendix A of my Rebuttal Proof. 18 York Aviation LLP

21 Louise Congdon Summary of Evidence 76. I consider that a reasonable estimate for the number of passengers requiring to be accommodated in the departures busy hour would be around 4,800 and in the arrivals busy hour would be around 4,100 passengers at the time when Stansted is handling 30 mppa. Neither the Terminal Arrivals Bay nor the Departures Bays would be required to handle demand up to 30 mppa. A first phase only of Satellite 4 is likely to be required by the time demand is approaching 30 mppa. 77. Further apron development (16 aircraft stands) to complete Echo cul de sac would be required but not the additional widebodied aircraft stands in Zulu and Yankee cul de sacs, between the existing cargo and maintenance areas. Further cargo and maintenance developments could be deferred based on current market trends, along with improvements to Bassingborne Road and Thremhall Avenue in adjacent areas. Some further car parking spaces, both short and long stay would be required. 78. Some of the schemes proposed by BAA (even if some part of the capacity which they provide will be needed to meet demand before 35 mppa) will provide capacity to meet demand well beyond the 35 mppa threshold implying that users will be paying for infrastructure in the short term which cannot be fully used until the provision of the second runway. This would include the Arrivals and Departure Bays and the full development of Satellite 4. For example: the Arrivals Bay is being planned to handle an increase of 28% in the flow of arriving passengers experienced in 2006, suggesting that the capacity being provided by this scheme is at least 37 mppa international passengers on BAA s estimates of hourly arriving passengers. Two additional Departures Bays were assumed by BAA to be required in order for the Airport to be able to handle 25 mppa yet the first additional Departures Bay is only now being contemplated for demand approaching 35mppa or more according to the timing within the CIP. This is particularly material in terms of the potential surface access implications. 79. In the case of many other schemes within the CIP 2007, shown in Table 2.3 of my Rebuttal, the timing is so speculative as to give no confidence as to whether the development is necessary to handle demand equivalent to 35 mppa and to secure best use of the single runway. 80. There are also developments proposed, even in the short term, which do not have planning approval, but which are not included in BAA s application. York Aviation LLP 19

22 Louise Congdon Summary of Evidence 81. All of these infrastructure projects would be consequential developments if planning approval is granted as requested by BAA. Hence, it is relevant to consider whether they are justified in order to meet demand as it will actually arise. 82. I have prepared a new schedule, based on the tables in the Appendix to my first Proof of Evidence and in my Rebuttal Proof, in order to summarise the key points about what development is needed to meet 25 mppa, 30 mppa and 35 mppa, along with its planning status. I have received comments from UDC and am in discussion with BAA with a view to agreeing this schedule to put before the Inquiry. Using this information, I have assessed that if development was limited in the short term to 30 mppa, additions to the RAB could be reduced by at least 280 million over the next 5 years, even accepting BAA s costs for the developments which are required. 83. It should be noted that, the schemes required to enable 30 mppa in essence involve intensification of use of the existing terminal and apron areas. This is sound planning. As such, they would contribute to making best use of existing infrastructure supporting growth by high density low fares airline operations. The Relationship of the Current Proposals to the G2 development 84. Implementation of the development originally proposed by BAA in connection with applications made when Stansted was never intended to be expanded beyond single runway capacity has the effect of forcing BAA to adopt a more land hungry layout for further (G2) development, by up to 54% 29. By containing development in the short to medium term to infilling within the existing terminal and surrounding apron areas, this will ensure maximum flexibility is retained to allow the optimum scheme for G2 to emerge through the planning process. 85. Many of the schemes potentially required to enable in excess of 30 mppa to be accommodated, such as additional aprons, taxiways and surface access roads, require strategic decisions to have been taken regarding the ultimate layout for a two runway airport, including the relative scale and location of passenger terminal development, road access to the terminal and the taxiway configuration necessary to serve the two runways. Schemes proposed as part of the G1 development in the CIP 2007, which may not be required or which may be abortive dependent on the precise detail of the G2 layout, include developments such as the Juliet taxiway phase 4 scheme and the proposed works to Thremhall Avenue. 29 ACC/13, ACC Response to the G2 proposals 20 York Aviation LLP

23 Louise Congdon Summary of Evidence 86. BAA has failed, so far, to demonstrate to users that its G2 development proposals are realistic in terms of the price which users are willing to pay and without damaging the underlying traffic growth. The proposals have yet to be tested through the planning system. In the meantime, development of the existing site runs the risk of compromising the achievement of an efficient and cost effective development in the long run. A precautionary approach to G1 through the imposition of a 30 mppa cap would allow time for these issues to be resolved. 87. Granting approval to lift the passenger and movement caps as proposed by BAA runs the risk of developments being carried out prematurely, before they are needed, so leading to a less efficient solution for G2, contrary to the principles of sound planning. There is sufficient time to determine how long term efficient development can be achieved before additional infrastructure needs to be built for the purposes of handling 35 mppa rather than 30 mppa. Conclusions 88. The key test of policy relevant to this application is the achievement of best use of the existing runway, which means providing capacity to meet demand as it arises in a way which ensures that maximum use is ultimately achieved. Demand does not arise without the conditions existing for the airlines to be willing and able to put on services to meet that demand. For that reason, the ATWP makes clear that development needs to brought forward in a manner which meets the needs of users. 89. The policy set out in the ATWP of achieving best use of the existing runway will not be met by simply providing capacity for its own sake at Stansted, as asserted in evidence by BAA. If development consequent upon this application is likely to result in costs to users rising in a way which would make achieving best use of Stansted s capacity less likely, this is contrary to policy. 90. Consideration of the physical infrastructure developments, as a consequence of granting this application, is a matter for the planning system. The implications cannot be left simply to the regulatory system. The inadequacy of the current regulatory system to deal with substantial infrastructure investment issues at airports has been recognised by the OFT. Hence, BAA is wrong to say that the issues raised by the ACC fall to be dealt with under the regulatory system. 91. There is a need for this Inquiry to consider the appropriate phasing of development to support achievement of best use of the runway Policy also requires consideration of whether demand will arise for the development as proposed, hence the importance of ensuring that the demand projections before this Inquiry are robust and reliable. York Aviation LLP 21