Scottish business and political dinner speech, 19 September 2002

Rod Eddington, Chief Executive, British Airways

Welcome everybody and thank you for joining us here tonight. It is a pleasure to be speaking to you in one of the finest capital cities in the world.

Scotland is very firmly on the international map. It is attracting attention from political and business interests around the world keen to find out how the new parliament and the Scottish nation will progress.

British Airways has been serving Scotland for more than 50 years and is an extremely important market for us.

Each year, we fly more than 4 million passengers on our flights from, to and within Scotland. We employ more than 1,600 people here. We operate more than 330 services each day with our subsidiary and franchise partners, including 100 flights to London.

These are vital links between the major cities of Scotland and the rest of the world: between Aberdeen and other oil capitals; between the financial and business markets of Edinburgh and London; between Glasgow and the hi-tech centres in the US, Japan and elsewhere.

That is why I welcome the Government's consultation on new UK airport development options for the next 30 years.

The recognition that it gives to the role of a competitive UK aviation industry in meeting the needs of the nation is critical.

At British Airways we also believe that building extra runway capacity can truly be a win/win situation.

A good, balanced outcome for the UK economy, for passengers, for the aviation industry, for the environment and for local communities is possible.

For Scotland, there is also the chance to get significant benefit from two of the proposals highlighted in the Government's consultation paper. Firstly additional runway capacity in Scotland could meet increasing demand. Secondly, an additional third regional runway at Heathrow would strengthen Scottish access to the global market.

I believe that it is the combination of these two proposals that will help to secure Scotland's future prosperity and ensure it continues to play a major part in UK plc's success.

Aviation is, after all, one of the UK's greatest success stories. It generates more than half a million jobs, 30,000 of those directly and indirectly in Scotland.

It contributes over £10 billion a year to the UK's GDP and more than £600 million to the Scottish economy, representing 1.2% of this nation's GDP.

A fifth of UK exports in goods, worth over £35 billion a year, is carried by air, with a further £6 billion in service exports.

Tourism is the fifth largest industry in the UK and the second largest in Scotland. Its importance to the regions of the UK has never been more clearly demonstrated than in the wake of Foot and Mouth Disease and September 11. Although Scotland was thankfully relatively free of the disease, visitor numbers dropped significantly and the resulting economic impact was a blow to the tourism industry and the country.

Having a leading European aviation hub at Heathrow was key to securing the UK's position as the world's 4th largest economy. Fast, frequent and efficient links to London have also enabled Edinburgh and the Scottish financial sector to share in this success.

But that position is now being seriously undermined because there has not been sufficient planning for the future.

While demand for air travel in Britain has nearly tripled since 1975 only one new full-length runway has been built. Heathrow, the UK's primary hub airport and our base, is operating at full stretch.

Airport infrastructure, particularly at a key hub such as Heathrow, demands long-term investment. It needs to be developed to secure the global links that Scotland, the North of England, the South West and Northern Ireland - indeed the entire UK - depend upon. Heathrow needs a regional runway.

Due to congestion and the associated shortage of aircraft take off and landing slots at Heathrow, the number of regional routes served from Heathrow has declined from 19 destinations in 1989 to just nine today. A new regional runway at Heathrow will reverse this decline and create opportunities for new regional routes to be served out of Heathrow.

Other European nations have been investing in infrastructure apace. They have realised the social and economic value of aviation and embraced development.

While Heathrow Airport may have been ahead of the rest ten years ago, Paris Charles de Gaulle and Frankfurt Airport are now better equipped to deal with growing passenger numbers.

Both these airports on the continent saw substantial investment and growth through the '90s, while Heathrow stood still. In fact, Heathrow is the only major airport that serves fewer gateways now than it did 10 years ago. It has seen a decline in the number of domestic regional services.

Amsterdam's Schipol airport serves a wider range of UK destinations than Heathrow, where the growth in capacity allows KLM to offer access to its global network of destinations at its hub. There is absolutely no economic benefit to the UK in this.

Here in Britain, increasing numbers of passengers are being squeezed through congested airports. As a result, passengers face crowded conditions, longer flights and increased delays. With limited resources and limited flexibility, the UK's airlines have had to focus on achieving the best returns for their businesses.

Put simply, congestion costs. It costs British Airways. It costs our passengers. It costs the UK plc. It costs Scotland plc.

We estimate the cost of congestion to British Airways to be around £600 million per annum - £500 million from splitting our operations between Heathrow and Gatwick because of capacity constraints at Heathrow, and £100 million from flight delays.

What's more, demand for air travel is forecast to treble again in the next thirty years. We cannot duck the issue of new capacity any longer.

Tough decisions must be taken. As the UK's Secretary of State for Transport said when he announced the consultation exercise, "Doing nothing is not an option." We need new infrastructure at airports throughout the UK.

The consultation has identified the need for a new runway in the Central Belt of Scotland if demand is to be met. It also identified the benefits to Scotland of increased capacity in the South East - the growth in passenger numbers through Scotland's airports will be greater if the South East's airports are allowed to develop without restriction.

We believe a third, regional runway will best meet this growth; that a new, shorter runway for regional services will strengthen Heathrow's position. A strong Heathrow means a stronger UK, improved regional development and more inward investment.

But we also recognise the uniqueness of Scotland's situation.

It has strong ties to Europe, yet geographically it is on the periphery of Europe.

It has strong ties to North America, yet the size of its population means that there will always be a limit to the amount of direct longhaul transatlantic services it can support.

It has direct flights to Europe that will no doubt increase as the market develops, yet it will continue to need access to an intercontinental hub.

We are firmly of the view that that intercontinental hub should be in the UK, not Europe. It is in Scotland's best interests.

If we do not plan now to meet reasonable growth in demand, the costs in social and economic terms will be severe.

The Government has estimated that the price of an average return trip could increase by as much as £100, a price Scottish business and the Scottish people can ill afford. The appeal of Scotland and the UK as a location for international business and inward investment, not to mention inbound tourism, would be seriously damaged.

The Government has promised to produce its White Paper on Aviation early next year following the current consultations on the options for new infrastructure throughout the UK. The White Paper will outline the plans for aviation in the UK for the next thirty years.

Naturally, there has been considerable speculation about the outcome. Make no mistake - the decisions facing the Government about where to put extra capacity are very difficult. New infrastructure takes a long time to plan and build. Just look at Terminal 5 at Heathrow - it will have taken 13 years from planning to completion in 2008.

But we must get it right if Scotland and the UK are to remain competitive in an increasingly global business environment.

Building more runway capacity in Scotland and an additional third regional runway at Heathrow is the best possible way to achieve that.