Airports Slot Allocation (Alleviation of Usage Requirements) (No. 2) Regulations 2021
(Limited Text - Ministerial Extracts only)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Airports Slot Allocation (Alleviation of Usage Requirements) (No. 2) Regulations 2021.
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)
My Lords, these draft regulations will be made under the powers conferred by the Air Traffic Management and Unmanned Aircraft Act 2021, known fondly by everybody as ATMUA. ATMUA created a more flexible set of powers for Ministers to implement slot alleviation measures related to the impacts of Covid-19, subject to a vote in both Houses. It allows us to tailor our response in ways that were not possible beforehand.
Ordinarily, airlines must operate slots 80% of the time to retain the right to the same slots the following year; this is known as the 80:20 rule or the “use it or lose it” rule. However, the powers provided by ATMUA enable the Secretary of State to provide alleviation from this rule if he is satisfied that there is a reduction in demand due to the Covid-19 pandemic and that the reduction is likely to persist.
Under ordinary circumstances, the 80:20 rule helps to encourage efficient use of scarce airport capacity while allowing airlines a degree of flexibility in their operations. In response to the Covid-19 pandemic, the EU Commission waived the 80:20 rule for the summer 2020 and winter 2020 seasons. Following the UK’s departure from the EU, the UK Government decided to extend this waiver to cover the summer 2021 season, going through until the end of October 2021, through the Airports Slot Allocation (Alleviation of Usage Requirements) Regulations 2021.
Through the provision to airlines of legal certainty that they would be able to retain their slots even if not operated, the commercial impacts of the Covid-19 outbreak on the industry were mitigated. This is because airlines might otherwise have opted to incur costs and operate flights at low load factors merely to retain slots. That would have been bad for emissions and, of course, bad for their finances.
Due to continued uncertainty and low passenger demand forecasts, we set out a package of measures on 19 July to alleviate slot usage requirements for the winter 2021 season, which runs from 31 October 2021 through to 26 March 2022. This package was developed following consultation with the aviation industry and careful consideration of the responses that we received. Industry expressed a range of views, ranging from calls for a full waiver to support for no alleviation at all.
The draft instrument being considered today applies to England, Scotland and Wales. Aerodromes are a devolved matter in relation to Northern Ireland and, as there are no slot co-ordinated airports in Northern Ireland, the Northern Ireland Executive agreed that it was not appropriate for the powers of the Act to extend to, or apply in relation to, Northern Ireland.
In the draft instrument, the Government have set out a package of alleviation measures designed to work together. These include changing the minimum usage ratio to 50:50, meaning that airlines are required to use their slots at least 50% of the time to retain the right to operate these same slots the following year. The reintroduction of a utilisation rate should encourage efficient slot use while also supporting sector recovery.
Secondly, the draft regulations also allow airlines that hand back a full series of slots to the slot co-ordinator—
Baroness Vere of Norbiton (Con)
My Lords, we were talking about the content of the SI and discussed the first element, which changes the minimum usage ratio to 50%.
The second element is that the regulations allow airlines which hand back a full series of slots to the slot co-ordinator before the start of the season to retain the right to operate that series of slots the following year. This will provide an opportunity for other airlines, including new entrants, to apply for and operate these slots on a temporary or ad hoc basis. This measure will apply to traded and leased slots but not to newly allocated ones; this is to prevent carriers acquiring slots with no intention to operate them. Airlines which have announced that they have permanently ceased or will permanently cease operations at an airport before the start of the winter 2022 season will not benefit from this measure in winter 2022.
Finally, the draft regulations expand the reasons which airlines may use to justify not using slots to include Covid-19-related restrictions. This provides a backstop against the risk of unforeseen Covid-19-related measures or restrictions being imposed during the season. This will apply where unforeseen Covid-19-related measures—including flight bans and quarantine or self-isolation requirements—are applied at either end of a route and have a severe impact on demand for the route or its viability. It will apply where restrictions could not reasonably have been foreseen in time to hand back the full slot series. There will be a three-week recovery period during which these provisions, sometimes known as force majeure, may still apply following the end of the Covid restrictions. These measures will cover the winter 2021 scheduling period, as I have noted. We are currently considering alleviation for summer 2022 and plan to consult with industry to inform our policy decision later this year.
This instrument provides necessary relief for the aviation sector for the winter 2021 scheduling period. Through this package of measures, we have aimed to strike a balance between supporting the financial health of the sector and encouraging recovery. I commend this instrument to the Committee.
Baroness Randerson (LD)
I thank the Minister for her very clear explanation. I certainly appreciate the need for these adjustments to take the heat off the airlines during what is still a difficult time for aviation.
I note that one of the reasons why the non-use of slots is justified is a result of government-imposed measures which make routes unviable. It is a pity that the airlines are getting the benefit of this alleviation on slot allocation when there appears to be no clear obligation on those same airlines to return money to consumers on the basis of the same government restrictions on flying. Not all airlines by any means have behaved badly, but the CMA has recently cited a lack of clarity in consumer legislation for its abandonment of attempts to ensure that all airlines did the decent thing and offered proper refunds. Can the Minister say whether the Government have any intention to clarify consumer law?
I note also that there has been no impact assessment because this legislation is designed to be for a period of less than 12 months. But in fact, although it sets out rules for 2021-22, it also bestows rights to the control of future slots into 2023. That is what the winter period of 2022 becomes—it moves over into 2023. This situation has already existed for 18 months, and, as the Explanatory Memorandum itself points out, slots have significant competitive operational and financial value. Taken together, this will have a distorting impact on the industry—it can have nothing else. The Explanatory Memorandum warns of the impact on smaller airports and the likelihood that the relief to a 50% level for the use of slots will have an impact on small airlines wanting to accumulate new slot rights at congested airports. Therefore, although this measure is undoubtedly environmentally desirable and commercially necessary at this time, it will favour the big and established airlines. I would be interested to hear the Minister’s comments on that.
Paragraph 7.6 of the EM recognises the dubious practices of some airlines, which seek basically to game the system by seeking to accumulate new slots for this winter which they have no intention of using, simply to gain historic rights for use in the future. So my question to the Minister is this. In the past, Gatwick has had some concerns about what it saw as unfair hoarding of slots. Is the Minister aware of this issue—I am sure she is—and has it been resolved to the satisfaction of Gatwick Airport?
Paragraph 3.1 of the EM refers to reasons for delay in laying the draft SI and the need to use the latest data on the level of air traffic. Can the Minister please give us an update on what the latest level of air traffic is at the moment? What percentage are we up to compared with 2019, for example?
Finally, is the Minister aware of what action our neighbouring countries are taking on this issue? Are they taking similar action on slots? Everyone started from a similar position on the rules on slots across the EU and in neighbouring countries. In the early period of the pandemic, I recall that they all moved forward in a fairly similar way. Are we still in tune with the actions of our neighbours?
Baroness Vere of Norbiton (Con)
I thank the noble Baroness, Lady Randerson, and the noble Lord, Lord Rosser, for their contributions to the short debate today and for their welcome—I think—for these regulations. I think they do the right thing for the industry. As ever, both have asked me questions that I am unable to answer today, so I shall be writing, but, in the meantime, I hope to run through a few of the elements that have been raised.
First, it is worth reflecting on where the aviation sector is at the moment. Obviously, it remains not where we want it to be, but it is in a much better place than it was. As of the end of September 2021, UK flight traffic continues slowly to recover but remains 49% below corresponding 2019 levels. Even with the ongoing relaxation of restrictions and the anticipated reopening of travel to the US, Covid-19 is likely to remain a considerable source of uncertainty for some time. I think that also addresses the point made by the noble Lord, Lord Rosser, who asked where we see things going in the future. It is not really possible for us to say what we think capacity is going to be like over the winter months, and certainly we will need to maintain as much flexibility as possible. We have to make sure that we discourage slot hoarding and inefficient slot use. We need to make sure that we support the airlines’ financial health as much as we can, and we have to protect future connectivity, both domestically and internationally.
Part of what the Government are working hard on at the moment is what the future for aviation looks like, because we recognise that it has been an incredibly challenging time for what feels like a long period now and the sector is vital to our future as a global trading nation. My department is working on a strategic framework for the aviation sector which will focus on building back better and ensuring a successful UK aviation sector in the future. The framework will explore a number of issues, including workforce and skills, regional connectivity, noise, innovation and regulation, and the consumer issues so rightly highlighted by the noble Baroness, Lady Randerson. The framework will of course also consider climate change and decarbonisation, as well as the role that aviation plays in the UK’s global reach. We hope to have that published by the end of the year. I look forward to discussing it with noble Lords then.
The noble Lord, Lord Rosser, asked what proportion of full slot series have been handed back. I do not have that data, and I am not entirely sure that we would have it, for commercial reasons, but if I am able to find out a bit more information I shall certainly write to the noble Lord and set it out. Whether they use slots has to be a commercial decision for the airlines; they will take into account the services and routes they operate. The provision allows them such flexibility so that they are able, before the start of the season, to do something about what they think is going to happen if they potentially have too many slots that it is clear they will not need. We are aware that a number of airlines have returned their slots and then reapplied for a proportion of them as ad hocs. This is a legitimate use of the provisions, which are designed to promote flexibility. These slots may of course have been allocated to another carrier. In those circumstances, the decision is not exactly risk free, but it was obviously the right one for the airlines that chose to do that.
The noble Lord, Lord Rosser, also asked for greater detail on the breakdown of the 54 respondents and who felt what about which of the interventions we are proposing. I do not have that. I have said previously that there was a range of views. We felt that the 50% minimum usage threshold was supported by the largest number of respondents, and it is consistent with proposals being put forward by IATA—again, that is helpful.
The noble Baroness asked what the EU is doing. It is doing something fairly similar at the moment. I think we have slightly more flexibility because we have the powers under ATMUA, but, given that aviation is so interconnected, we look at what the EU is doing as well as at what is happening in the US, where domestic flights have continued to a significant degree but international flights have not. We believe we have the right balance.
The noble Baroness, Lady Randerson, asked about an impact assessment and highlighted some of the impacts that have been set out very well in the Explanatory Memorandum. There are pros and cons. It is a careful balance that we are trying to achieve, but a formal impact assessment is not needed—obviously, my officials checked this out carefully—because the regulations apply for a six-month period; that is, it is less than 12 months. However, we have done what we can to set out clearly the benefits and potential disbenefits of the interventions in the Explanatory Memorandum. Given that our interventions are matched by so many other countries, I believe it is probably the right way to go.
I turn to some of the longer-term issues relating to slots. It is the case that we are considering the whole slot allocation system as part of future aviation policy. We are not entirely convinced that the current system is working as efficiently as it could. It is worth looking at it because, as we recover from the impacts of Covid-19, we want to make sure that we have the right level of competition to ensure that the customer gets the best levels of connectivity and indeed price. This work will involve consultation with our international partners and all our UK stakeholders. It is not a small endeavour but it is something that we will be looking at in future.
Without the instrument, we would return to the default 80:20 slot usage rule. I do not believe that noble Lords want to go there and no one has indicated that that is the case. I therefore think that the instrument provides an appropriate way forward and I beg to move.