House of Commons - Northern Ireland Affairs

Select Committee on Northern Ireland Affairs Eighth Report

4 Route Development Fund

44. Mr Ian Pearson MP, then Minister for Enterprise Trade and Investment, launched a Northern Ireland Route Development Fund (RDF) in September 2003. The Fund, which is similar to one introduced in Scotland a year earlier, was set up "to help promote the development of new air routes that are of economic benefit to Northern Ireland".[86] The objectives of the scheme emphasise the development of new routes "particularly with continental European centres"[87] by providing "investment support for local airports to reduce landing charges for carriers on selected and targeted new routes".[88]

45. The introduction of the Fund was generally welcomed, although the CAA urged caution saying that "there is a need to avoid a proliferation of subsidies";[89] and bmi argued that "providing subsidy to private sector operators distorts the market".[90] Belfast International Airport believed that the Fund was "a good initiative" and that it did not change the "basic airline rationale in terms of route development, [but] rather altered the timing of certain developments".[91]

ASSESSMENT OF POTENTIAL ROUTES

46. The Department of Enterprise, Trade and Investment (DETI), which administers the scheme, told us that they were unsure what the initial uptake from the Fund would be, and rather than targeting selected routes they "came up with a kind of informal list." However, this was not published, and they "relied on the airlines, the airports, the market … coming forward with a proposal.[92] We were also told that no priority was accorded between routes within the United Kingdom, routes to continental Europe, and transatlantic routes, DETI indicating that "we take them as they come".[93] DETI sought to reassure us that each route was looked at "on its merits ….but it was always conditional on there being a direct, real, economic benefit to Northern Ireland".[94] DETI subsequently stressed that the primary objective of the Scheme is "to improve the economic infrastructure of Northern Ireland by improving accessibility for the benefit of promoting business linkages and enterprise development. To that end, the creation of new routes is in itself the main benefit that the Scheme is seeking to realise".[95] Supplementary evidence we have received appeared to underline the associated social benefit of these routes.[96]

47. It seems evident that adequate research was not carried out before the Route Development Fund was introduced to identify priority target routes based on clear business needs and inbound tourism potential. The absence of such priorities has resulted in funding being awarded in what appears to be an ad-hoc and haphazard way. We are concerned that the start-up of any new routes seems to be accepted by Government as an end in itself and, although this may provide a social benefit for Northern Ireland, it does not meet the stated objectives of the Fund.

ROUTES SUPPORTED

48. DETI announced new routes to Rome and Berlin in January 2005. This brought to nine the total number of routes supported by the Fund of which three are within the United Kingdom.[97] The General Consumer Council pointed out that two routes, from City of Derry to Manchester and Birmingham, were already served from both Belfast airports, and suggested that the additional benefit of these for Northern Ireland consumers could be "limited".[98] Belfast International Airport went further, describing this decision as "a misuse of resources and counter-productive to the overall aims of the initiative".[99] DETI told us that these decisions were based "essentially on economic criteria" and that they "helped to reinvigorate and regenerate growth at the City of Derry Airport".[100] City of Derry Airport, while welcoming the funding, suggested that Air Route Development (NI) Ltd "have reinterpreted the rules".[101]

49. The new routes to continental Europe were generally welcomed. For example, flyBE described itself as "an enthusiastic supporter" of the scheme.[102] The CBI had concerns that some of the new routes "are clearly focused at 'outward bound' tourism",[103] but recognised that 'business and tourism will marry together" and called for "sufficient marketing effort and resources" to be aimed at incoming passengers to retain the sustainability of these routes.[104] Jet2.com argued "that Government funding would be best channelled towards supporting the promotion of new services at the destination end of the route."[105] DETI told us that "the scheme enables the efforts of a range of organisations, including the airport, tourism bodies and inward investment agencies, to be more effectively focused and co-ordinated",[106] but it was unclear what promotion the new services received at the destination points.

50. The objectives of the Fund indicate that in developing new routes to continental European centres the aim is to promote "business linkages, enterprise development and tourism" and "to allow a day's business to be transacted at a wider range of European cities".[107] From a business perspective the routes supported by the Route Development Fund to continental Europe would appear to fail to meet the objective of allowing a day's business to be transacted, as in many cases they do not provide a minimum of a daily service and, where they do, it would not be possible to return later the same day.

51. The importance for Northern Ireland of having access to major hub airports, such as Heathrow, is fully recognised. "Improved connectivity for business travellers in and out of Northern Ireland" is also one of the economic benefits expected from the new routes supported by the Fund.[108] While some of the new routes are to important hub airports, including Amsterdam and Paris Charles de Gaulle, these are provided by a low cost airline which does not provide direct connections for onward flights.[109]

52. The Department for Transport highlighted the issue of onward connections and stressed that there will be a continuing need to have "full scheduled services connecting with onward services, not only at Heathrow but also at European hubs".[110] The recent CAA study on regional air services quantified the extent of so-called 'self interlining', where the passenger, rather than the airline, arranges for his own connections and takes the risk of making a suitable connection. We note that the level of 'self interlining' is very significantly lower than the level of connections between full service airlines.[111] We note also the experience in the Republic of Ireland where major 'flag carrying' airlines, including Air France (with CityJet) and Lufthansa, have a number of services a day to their main hubs from Dublin Airport.

53. We recognise the importance of developing new routes to hub airports that provide alternatives to Heathrow. However, the value of such connections is greatly reduced where the airlines do not provide direct connections to onward flights. The merits of giving greater priority in allocating Route Development Funding to 'full service' airlines connecting to their hubs should be considered.

54. The CBI argued that direct access to a United States hub was essential for the Northern Ireland economy and pointed out that Northern Ireland has had no direct transatlantic services since the Aer Lingus route from Belfast International via Shannon to New York ceased in 2001. This compares very unfavourably with Dublin airport which currently has nine routes to North American destinations.[112] CAA statistics show that in 2003 some 37% of passengers travelling from Belfast to Heathrow were connecting to other flights and that about two-thirds of these were travelling to North America.[113] In addition, it is likely that a considerable number of passengers from Northern Ireland use the Dublin services to North American destinations. A new route operated by Continental Airlines to New York will commence in May 2005 and Belfast International Airport stressed that the Route Development Fund "was absolutely essential in obtaining a service to North America, we could not have done it without it".[114]

55. We commend the use of the Route Development Fund to support a new direct service from Belfast International to New York's Newark International Airport, which is due to begin shortly. This is a particularly welcome service which will provide full interlining at an important east coast hub allowing onward connections throughout the North American continent.

MONITORING OF ROUTES

56. It is a condition of the Route Development Fund scheme that the performance of each route will be monitored for a period of three years under a number of headings; the detailed breakdown of passengers flown, financial measures relating to investment per passenger, and economic measures relating to tourism numbers and jobs created.[115] The DETI explained that supported routes are monitored on a monthly basis through an analysis of passenger statistics and that "we know how many business people are travelling, which direction they are coming from, the extent of the inbound tourism".[116] However, when asked for specific information on two sample routes which have been in operation for over six months, only the overall number of outbound and inbound passengers was available with no breakdown of business or leisure passengers.[117]

57. Although jobs, tourism numbers, and tourism revenue were identified as issues to be measured during the monitoring of the scheme it is clear that in practice no specific targets relating to these have been set.[118] The Department told us that direct and indirect job creation was "one of the side benefits of the scheme" and suggested that "possibly as many as 500 jobs will result from the scheme. This was not one of the objectives of the scheme when we introduced it".[119] The absence of any specific economic targets means that the only measure of success of the Route Development Fund will be the sustainability of supported routes. This is not sufficient, and we recommend that the way in which the scheme is currently monitored, and the identification of appropriate targets be reviewed urgently.

58. The Department for Transport is developing a UK-wide protocol and appraisal framework as part of its monitoring of Route Development Funds.[120] It also confirmed that "a number of other regions are considering setting up Funds".[121] One of the key objectives of this framework is to ensure that the Funds "work with the market rather than distort it".[122] The CAA stated that the Funds can cause distortions of the market warning that "You could end up with a race to the bottom, in terms of competing regions trying to out-subsidise each other".[123] The Department for Transport was dismissive of this claim suggesting that "if [Route Development Funds] are properly operated …. The risk of them generating unfair competition or over-competitive markets is a pretty minimal one".[124] Belfast International Airport highlighted the experience of the Scottish Route Development Fund, which it described as having a 'scatter-gun' approach, and pointed out that, while there have been a number of "hugely important" new routes developed, "there have been a number of failures in a very short timescale".[125]

59. We take very seriously the warning that Route Development Funding may distort the market and we have concerns that, as more regions of the United Kingdom introduce Route Development Funding schemes, its efficacy could be seriously diminished with airlines tempted to switch routes to chase this support.

REVIEW

60. DETI told us that the initial budget of £4 million for route development was now fully committed and that it is "taking stock".[126] Just over 90% of the Fund has been spent on direct support for routes, while almost 10% was spent on administration and consultancy.[127] There was general support for the Fund to continue, although Belfast International Airport conceded that it did not think "there are actually that many more routes that need pump-priming".[128] DETI advised us that a review of the scheme will be undertaken and shared with us the Terms of Reference.[129] The review will be undertaken by the company set up to administer the scheme, Air Route Development (NI) Ltd, in conjunction with DETI. The Terms of Reference state that "it is too early to make an assessment of the overall effectiveness of the scheme" and indicate that "the review will essentially take the form of a stocktaking exercise".[130]

61. Since the introduction of the Route Development Fund there has been a significant upturn in air services generally throughout Europe, particularly by low cost airlines. We are aware of some 25 new routes in Northern Ireland announced since the launch of the fund with nine of these supported by the Fund. It is difficult to assess how many of these supported routes would have commenced without funding. While the overall aims and objectives of the Fund are commendable, we have serious concerns about how they have been applied in practice and believe that the maximum potential economic benefit may not have been achieved for Northern Ireland.

62. We recommend that, before any additional funding is provided for route development, a thorough, robust and independent review be carried out into the operation of the scheme to date and its potential to contribute further to economic development in Northern Ireland.

86 Ev 144 Back

87 Ibid Back

88 Pearson announces new Air Route Development Fund, DETI News Release, 4 September 2003 Back

89 Ev 6 Back

90 Ev 169 Back

91 Ev 125 Back

92 Qq 264, 266 Back

93 Q 269 Back

94 Q 264 Back

95 Ev 88 Back

96 Ev 89 Back

97 Q 246. Funded routes commenced in 2004, Belfast International to Paris and Nice, City of Derry to Birmingham and Manchester. Funded routes due to commence in 2005, Belfast City to Norwich, Belfast International to Newark, Geneva, Berlin and Rome Back