Mine's smaller than yours

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In scenes vaguely reminiscent of the Four Yorkshiremen, it seems that the so-called ‘leaders’ of the UK and Canada got themselves into a debate in Germany over who had arrived in the smallest private jet. At a mere 45 metres long, Johnson’s A321 Airbus beat Trudeau’s 47 metre Airbus CC-150 in the aircraft poverty stakes. How many people were in Johnson’s retinue is not recorded, but it’s doubtful whether it was anywhere near the 170 – 220 which an A321 is normally capable of carrying.

Johnson did, however, cheat in order to win the game. (Nothing new there of course.) It seems that he only won because he was in the backup aircraft, rather than his usual transport, which is a 60 metre long Voyager variant of the Airbus A330 (normally configured, in civilian use, for anything up to 406 passengers). That, however, was unavailable, because the monarchy have first call on its use, and Charles Windsor had exercised his royal privilege to bag the plane for himself. Presumably to make sure that there was adequate space for his official toilet seat, and enough cupboards to hold carrier bags full of cash should he happen, in the course of his travels, to bump into any rich sheiks looking to relieve themselves of a spare few million quid.

Johnson’s victory over Trudeau because of the use of the royal trump card does, however, bring us to the question that no-one seems to have asked. Both Johnson and Windsor travelled from the same starting point (London) to the same destination (Rwanda) to attend the same meeting, and each used a separate enormous aircraft to do so. And while Johnson then travelled on to Germany leaving the heir to the throne in Kigale, the bigger plane continued to sit on the runway at Kigale until such time as its passenger returns home. Whilst we know that the two men are not exactly the best of bosom buddies at the moment, they both claim to be strong supporters of action on climate change, something which is not exactly easy to square with use of large private jets. Surely either one of the planes would have been quite large enough for them to sit far enough apart that they didn’t even need to acknowledge each other. One each side of the cash cupboards perhaps. Is it really beyond the wit of those purporting to run the UK to organise itineraries such that one plane would have sufficed?

Large scale job creation?

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There was a story, some years ago, about a British company which ordered a large quantity of computer chips from a company in Japan. The order specified a fault rate of 2%, meaning that they expected that 98% of the chips delivered would be perfect. When the order arrived, there was a small package containing some of the chips along with a note which advised the customer that the faulty chips had been packed separately so it would be obvious which ones they were. The point of the story, of course, is that the traditional ‘British’ approach to quality control was to put expensive processes in place to identify faulty products, whilst the Japanese approach was to build quality in so that there were no faulty products to identify.

It’s stereotyping (and almost certainly apocryphal), but it resonates. Worse, it seems to underpin some aspects of the current government’s approach to handling the pandemic, and in particular the issue of quarantine. Moving from a ban on all holiday travel to a gradual relaxation could have been a very simple process: all that was required was to keep all existing rules, and publish a list of excepted countries where travel was once more permitted. Those booking holidays would know exactly where they stood, and travel companies could bring enough staff off furlough and enough planes out of their parking zones to run flights to a small number of countries. But why do anything so simple when there is a more complicated approach available? By removing the ban on travel and placing all countries into one of three lists, the government has managed to turn simplicity into absolute confusion. Travel companies believed (reasonably enough) that they had been given the legal go-ahead to run flights to amber list countries and consequently lined up more planes and staff than would otherwise have been the case, and would-be holiday-makers believed that they were being told that they could go as long as they followed the quarantine rules on return. The government has spent much of the time since their announcement trying to explain that that which is legal isn’t really allowed after all.

Not only that, but they’ve been busy expanding the numbers of people employed to check that people are properly quarantining – the Home Secretary told us yesterday that “Significant resources have been put in place – millions of pounds – in terms of the follow-up checking of people around their testing and making sure they stay at home. It has been stepped up”. As job creation projects go, getting more people working to provide travel arrangements which then require the government to employ more people to check up on those who travel is a pretty large scale scheme but, just like the example of those computer chips, it’s about dealing with the consequences of things going wrong rather than preventing them from going wrong in the first place.

The government would probably counter by arguing that trusting people to use their own good sense and do the right thing is better than banning them from doing the wrong thing. In principle, they’re right – social solidarity is a much more cohesive approach than using rigid rules. But social solidarity is based on people identifying with the common good and wanting to work collectively, not on a system of shaming, pursuing, and fining transgressors. And a party which has spent decades preaching – and is still doing so – that greed is good, and that selfishness is the motive which should drive us all is singularly ill-placed to fall back on any sort of appeal to people’s altruism.

Defining viability

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Flybe may be the first major company to be tipped over the edge by a drop in sales as a result of the coronavirus, but it won’t be the last.  And it seems that the probability of company failures is likely to mirror the probability of a fatal infection in humans, in that it is the most vulnerable which are most at risk.  Flybe was certainly in the vulnerable category anyway; how long the company would have survived even without the drop in revenue resulting from the virus is an open question.  We may well see coronavirus becoming another convenient excuse for failures which might well have happened anyway.

That makes it harder for government – whether in Cardiff or in London – to decide when and how to intervene to support failing companies.  Whilst it’s clear that government intervention is the only way of preventing some failures during the probable epidemic facing us, governments are historically not very good at identifying which companies are good bets and which are poor ones.  At the level of individual companies, that may not always matter a great deal – after all, if a company was a good bet, it would usually be able to obtain commercial finance, and needing government action to fill a commercial gap is a sure sign that the commercial case isn’t as strong as it might be.  Expecting the same proportion of success from government investment as one might expect from commercial investment is wholly unrealistic; the more marginal the cases being assisted, the greater the probability of failure, a point not well understood by some critics of government policy, especially here in Wales.

That’s no excuse, though, for throwing public money into hopeless cases, especially where the public purse ends up carrying all the risk and all the potential reward flows to the company’s owners.  At its simplest, a company which cannot sell a sufficient quantity of its goods or services at a high enough price to at least cover its costs and liabilities (and preferably to make a profit on top) is not viable, and tax payment holidays or government grants cannot change that underlying picture.  A company which claims that it would be viable if only it didn’t have to pay one or other form of tax really isn’t viable in the real world within which companies must operate.  From all the news stories which have appeared in recent months, I rather suspect that Flybe is not a viable proposition, with or without coronavirus.  On many – perhaps most – of its routes, it is simply not selling enough seats at a high enough price to cover its costs.  As with vulnerable humans, the virus has merely brought the end forward a little.  I’m not sure that some of the politicians bemoaning the impact on Cardiff Airport fully understand that economic reality.

The question that needs to be asked now is not ‘how do we rescue Flybe or find another operator to take over the routes?’ so much as ‘why is the demand for the routes being flown insufficient to cover the costs of operating them?’.  Paying people to run loss-making and environmentally damaging flights in order to boost the fortunes of a loss-making airport doesn’t immediately strike me as the best way of meeting what appears to be a very limited demand for travel between the relevant places.

The return of Air Wales?

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I referred yesterday to my scepticism about the proposal put forward by Plaid that Wales should have its own national airline, along with a network of regional airports across Wales.  There are a number of issues with this proposal, to my mind.

The first concerns general trends in the aviation industry.  It’s an industry which has certainly seen a great deal of growth in recent years, and that growth has been accompanied by falling prices.  And there is clearly scope for continuing growth into the future.  But that combination of growth and falling prices has been achieved by a mixture of consolidation of national airlines into multinational groups and the rise of cheap low-cost airlines.   There is a history of specifically Welsh airlines - we did, of course, have Cambrian Airways which was moderately successful, and which operated for almost 40 years before being swallowed up by BA in an earlier period of consolidation in 1974.  And we had Air Wales, in two different guises, both of which hit financial problems and eventually ceased operations, in the later instance citing spiralling costs and aggressive competition.  As a means of boosting the range of flights from Cardiff Wales airport, setting up a new state-run airline in a small country like Wales would be going against the flow, to say the least.  That isn’t a cast-iron reason for not doing it, but it’s a pretty good reason for exercising a great deal of caution.

Added to that is that the proposal seems to be based on a supply-led, rather than a demand-led, approach to increasing air traffic.  I don’t doubt that there are people in Wales who would like to be able to fly to an increased range of destinations from Cardiff airport, but at what point does that demand become sufficient to justify the prior expenditure on providing the capacity?  The experience of commercial operators who’ve tried starting new services from Cardiff Wales does not augur well.  A national airline looks like a potential way of diverting a large amount of government expenditure to a loss-making enterprise.  And that is in the context of a government which has little control over its own revenue streams and is legally obliged to balance its budget, meaning that significant investment in an airline would inevitably impact other services.

Underlying those problems is the question of the catchment area from which the demand arises.  I remember a comment on a previous post about expanding Cardiff Wales airport which came close to suggesting that I was being unpatriotic by not enthusiastically supporting expansion; but we need to have a degree of realism about the airport’s prospects.  The population in the catchment area which it is uniquely placed to serve is comparatively small, and is restricted to Cardiff, the Valleys and points west thereof (and we need to remember that parts of that catchment area are among the poorest parts of the UK, a factor which inevitably constrains the current demand for air travel).  For the North, the Canolbarth, and Gwent, there are equally accessible (or even more accessible) competitor airports, and that will remain true even after constructing improved communications routes between north and south.  Choice of airport isn’t just about having a wider range of destinations, or about price (let alone just about being patriotic); it’s also about convenience and ease of access.  The answer to the question ‘why haven’t we got direct regular flights from Cardiff to destination X?’ is because there is currently insufficient demand from within the unique catchment area to make such flights commercially viable (unless they are replacements for, rather than supplements to, existing flights to the same destinations from competing airports, and therefore able to draw on a wider catchment area).  Setting up a loss-making state-run airline is not the solution to that problem.

I don’t know what to make of the proposal for a network of regional airports across Wales as well as expanding the role of Cardiff.  If such airports are going to have their own short or medium haul flights, then they will be direct competitors to Cardiff, and if they’re seen as primarily the origin of ‘feeder’ flights into Cardiff, then they are just about the least efficient and most environmentally damaging method of transporting a (comparatively) small number of people around our country that I can think of.  This is exactly the problem with the current north-south air link – it benefits few and is viable only by the payment of a subsidy for each and every traveller.  Better by far to improve Wales’ internal surface transport (and especially rail), which was another of Plaid’s proposals and one which I would entirely endorse.

And that brings me on to my last, but far from least, point which is whether encouraging the growth of air traffic is a good thing anyway.  I don’t want to stop people enjoying foreign holidays (that would be hypocritical to say the least), nor do I want to create obstacles to foreign trade (although I do want to try and re-localise business as far as possible).  Both of those are likely to lead to slow organic growth in the number and range of flights available from Cardiff.  But actively encouraging the growth of air traffic goes beyond either of those objectives, and seems a strange policy to be coming from a party parading its environmental credentials.  Part of my support for the building of HS2 (which I know appears perverse to many independentistas) is that I see it as part of a high-speed pan-Europe rail network, and as an environmentally preferable alternative to increasing short haul air travel.  I want to see Wales benefitting from that alternative as well, rather than trying to block its development.

Setting up a national airline for Wales looks to me like a project aimed at boosting the semblance of statehood, at what is likely to be a high cost.  I’m more interested in attaining the substance of statehood.

Shifting the traffic

Tweet In recent weeks, the HS2 rail scheme has come under increasing and sustained attack from a range of directions.  At least some of the government’s problems on the HS2 project are entirely self-inflicted – they’ve been using the wrong arguments from the outset.

Building a business case for the project on the basis of the minutes shaved off the journey was always a dubious approach.  The claim that it would free up the time of businessmen and women to do other things was equally dubious – and I’m even more sceptical about the methodology being used to convert that time into increased GDP.  As Parkinson’s Law tells us, work expands to fill the time available: much of the “work” done - on trains or elsewhere, come to that - has little impact on anything.

It was also a mistake to concentrate so heavily on business travel.  Having used France’s TGVs on a number of occasions, I reckon that few of the passengers – on trains which always seem to be full – are travelling on business.  A fast – and cheap compared to UK fares – service attracts all sorts of people to use it; for leisure, for visiting family etc.

The debate, from the outset, should have been about capacity and the best way to provide it, and the government at last seems to be moving in that direction, albeit focused far too narrowly on rail capacity.  The case for building a high-speed rail network in the UK is based on the answers to two simple questions, in my view.

The first question is this: given that the demand for travel is growing inexorably, are we going to provide the infrastructure to accommodate that demand, or are we instead going to try and manage that demand downwards?

The “greenest” answer of course is to try and manage the demand downwards; take away the demand and there is no need for any new infrastructure.  In theory, that could be done; but I doubt that the will or the means exist do it consistently and over the decades of timespan which would be necessary to sustain such a policy effectively.

If the demand cannot be produced or managed, and more capacity is needed, that brings us to the second question: what is the best (or perhaps “least worst”) way of providing that extra capacity?

The “default”, if we make no attempt to plan and manage the demand, is that the number of road trips will increase, as will the number of short haul flights.  There are limits to the extent to which simply adding more cars to the roads and more planes to the skies is possible without more roads and runways, but we haven’t reached those limits yet.  Short-term, the effect of increasing the use of existing capacity is to increase congestion and make delays more likely, but there is no doubt that more capacity can be squeezed out of the system.

Eventually, however, continued growth makes investment in more infrastructure inevitable – hence the question “how?”.  Of the alternatives available, I’m convinced that electric railways are the “least worst” option, despite all the difficulties associated with building them. 

Do they need to be high speed?  Strictly speaking, and seeing them solely as a means of solving the capacity problem, the answer would have to be no.  However, if we see them also as an alternative to short haul flights, as well as an alternative to road journeys, speed becomes more important.  The faster the train, the greater the distance of the short haul flights which can be supplanted by rail travel.

And that ultimately is the attraction of HS2 – and HS3 and HS4 which I hope will follow.  Not as a single stand-alone project to cut a few minutes off journey times for businessmen and women, but as a long-term planned approach to shifting travel onto a less environmentally damaging platform.  Sadly, that aspect seems, thus far at last, to be peripheral to the considerations of those making the decisions.

Does a small tax really make so much difference?

Tweet Last week, a cross-party group of MPs urged the UK Government not to devolve Air Passenger Duty (APD).  No real surprise there – most MPs seem to be as strongly against devolving anything as I am in favour of devolving everything.  Taken in isolation, though, I find it hard to get as excited about APD as some do.  It’s a tiny part of total taxation revenue in the grand scheme of things, and the ability to vary it has little impact on total budget.  Insofar as it is a policy lever worth having, its value depends less on its revenue-raising ability than on its alleged impact on the success or otherwise of Cardiff airport.

On that point, I’m something of a sceptic. I’m simply not convinced that reducing the tax at one airport is going to result in the flow of business from elsewhere which others are predicting.

In a highly unusual show of unity by organisations which are usually at each other throats, four airlines joined forces a few months ago and commissioned a report from PricewaterhouseCoopers which argues that abolition of APD would benefit the UK economy.  It would also, of course, be of no small benefit to the airlines concerned. 

The argument put was that abolition of the tax would have a number of effects, including:

• making it cheaper for companies to physically visit their customers more often, thereby maintaining better relationships and selling more product
• making it cheaper for all of us as consumers to fly abroad on holiday and therefore encouraging us to fly more often
• encouraging airlines to invest in new and bigger aeroplanes and to open new routes.

The net effect, the report argues, would be to increase the U.K.’s GDP by around 0.45% in year one and by an average of 0.3% over three years.  Are they right? 

It’s an argument which has more than a little relevance for Wales given the suggestion that APD could be devolved.  (Although abolition of APD at UK level, should the airlines be successful with their proposal, would mean that Wales would have to set a negative air passenger duty if it wanted to use this tax for competitive advantage – in short, the government would have to pay us to fly.)

I don’t disagree entirely with the methodology used by the report.  There are however a number of caveats and unstated assumptions which are open to challenge, and which may affect the claimed benefits.  And I rather suspect that advocates of devolution of APD and subsequent slashing of the tax for flights from Cardiff are making very similar assumptions.

Firstly, it is effectively taken as read that globalisation is the way forward and that our economic model for the future should be based increasingly on travelling the world to sell our wares, rather than on a more localised approach to business.  And that, in turn, is based on the unstated assumption that fuel costs for transportation will remain at a low proportion of total costs.  In the short to medium term that may even be true; I’m far from convinced that it will be true in the longer term.

Secondly there is a question in my mind about the extent to which GDP really grows or is simply moved from one place to another.  If the sales made by jet-setting business people are truly “extra” then the overall world GDP does indeed grow; but if they simply replace goods currently being supplied from elsewhere, then we’re merely shifting someone else’s GDP to the UK.

Which brings me onto the third point – there is an implicit assumption that action by one country (or airport, in the case of the Cardiff proposals) to improve its competitive position at the expense of others does not provoke similar moves elsewhere.  It’s another example of the way in which tax reductions can simply lead to a race to the bottom.  And it’s a question which is equally valid in the case of any comparison between, say, Cardiff and Bristol airports.

The report also makes the point that air passenger duty is a regressive tax, which “impacts disproportionately on poorer households”, because the cost of an annual holiday in the sun represents a greater proportion of the disposable income of the lowest paid decile than of the income of the highest paid decile.  It’s true of course - in theory at least.  At a practical level I wonder how many people in that lowest paid decile can afford to fly anywhere anyway – with or without APD.  It also neatly skips over the corollary, which is that abolition of APD disproportionately favours those who can afford to fly off on holiday several times a year.

And somehow I rather doubt that the executives of the airlines commissioning this report would really support the abolition of all “regressive” taxes and their replacement with a more progressive income tax regime.  I suspect that their opposition to regressive taxes is confined to those taxes which are perceived to be limiting their own profits and salaries.

More generally, how desirable, in any event, is the expansion of air travel in policy terms?  Even if it does lead to a significant increase in GDP, is that enough of a justification?  Not all GDP is “good”; there are lots of things which are good for GDP but not necessarily desirable otherwise.  That’s a question which this report seems not even to ask.  And it's a question which those advocating a cut-price tax regime for Cardiff airport also seem not to be asking.

Flying off on a tangent

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Last week the idea of a new airport in south-east Wales popped up again, as it does – in one form or another – every few years.  And, as is invariably the case, the coverage focused on the practical aspects and consequences, rather than on the underlying principles and assumptions.

From a UK-wide perspective, building a new airport to the west of London somewhere around the Newport-Bristol-Cardiff area makes a great deal of sense, if you believe that:

• continued globalisation is either a good thing, or else simply inevitable
• demand for air transport will continue to grow
• demand for air transport can and should be satisfied
• we will find a way of dealing with the environmental consequences of an approach to aviation policy which simply sets out to satisfy every demand

I didn’t see much attention given to any of that last week; it was all about GDP and jobs – the usual approach of those who talk green, but act rather differently when they have to make choices.

The coverage – presumably because it started in Wales – also assumed that such an airport should be on the Welsh side of the estuary.  But hold on just a minute there – why should that be?  Clearly any airport on such a scale is well beyond Welsh needs, and has to serve a wider area. Indeed, as I said above, it makes sense only when viewed as a UK-wide project.  And from a UK perspective, it is far from being obvious that the best site is on this side of the estuary rather than on the other.

Nor can such an airport, any more than the existing one at Rhŵs, ever be a Welsh National  Airport in the sense of serving the whole of Wales.  Even in a wholly independent Wales, with the best conceivable north-south links, much of the north of Wales still be better served by using airports such as Liverpool, Manchester or Birmingham.

And why not?  There’s nothing fundamentally wrong with people in one country depending on an airport in another.  Geneva is in Switzerland; its airport is in France.  And the proponents of a Severnside airport are depending on the assumption that large areas of England will depend on, and choose to use, an airport in Wales; so large areas in north Wales continuing to depend on airports in England is not incongruous.

So, from a UK perspective, with a number of assumptions about future transport choices, Severnside airport may indeed make a great deal of sense, even if the most logical location is on the English side.

But does it make sense from a Welsh perspective, given a government commitment to putting sustainability at the heart of government decisions?  Does it make sense if one believes that globalisation will turn out to be a comparatively short term phenomenon, doomed in the long term by environmental and resource constraints?  Scarcely.

It owes more to a preoccupation with the ‘grands projets’ so beloved of many; and a belief that increasing wealth in one small corner of Wales is the solution to poor average GVA  per head.  It is yesterday’s thinking not tomorrow’s.

Not about ideology

Tweet The Tories’ group leader in the Assembly has described the Government’s planned purchase of Cardiff Airport as some sort of a return to Old Labour style nationalisation.  He’s misunderstanding history – it looks more like Tory policy than Old Labour to me.

Old Labour’s nationalisation policy was based on public ownership of the “commanding heights” of the economy.  It was a deliberate attempt to ensure that major parts of the economy were owned by all of us through the state, and that all of us – rather than merely the owners of capital – benefited from the success of those industries.

It wasn’t an overly successful policy.  That wasn’t – as the Tories and New Labour claim – because state ownership is inherently doomed to failure; but it was certainly true that central control and bureaucracy didn’t produce successful enterprises.  It was, however, a way of implementing an ideological commitment to common ownership and control; a commitment finally and totally abandoned under Blair.

It was the Heath government which put the concept of nationalisation on rather a different footing.  Rolls Royce was nationalised not because it was one of the “commanding heights”, but because it was failing.  Under capitalist control, it was going broke; state ownership was the only way of saving it.

That philosophy – the state as backstop for failing capitalist enterprises, and as the ultimate guarantor of risk in the event of failure whilst the capitalists take the rewards of success – is essentially and clearly a Tory policy rather than an Old Labour one, even if polished and built upon by the capitalist-supporting New Labour.

So, when I look at the proposed purchase of Cardiff Airport, do I see it motivated by a desire to bring the assets of Wales under common ownership – or do I see it motivated by a need to deal with a capitalist enterprise which is failing?  It’s not hard to come to a conclusion that Carwyn Jones’ proposal owes more to the Tory stance than to any ideological commitment of Old Labour.

That doesn’t mean that it’s the wrong thing to do – we just shouldn’t let the Tories (or Labour, come to that) get away with pretending that it has anything to do with ideology.

How much will we benefit?

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There seems to be a general welcome for the proposal to build a rail hub at Heathrow with a direct connection from South Wales, but I’m not entirely convinced that it will be as beneficial to Wales as is being claimed.  As with so much else, the devil is in the detail.

Whilst in principle, any improvement in the rail network will help to encourage a switch from road to rail, there have been no hard numbers in the reports which I’ve seen.  I don’t know how many people actually travel from South Wales to Heathrow in the first place, but that will surely be a key factor in determining how many trains run direct rather than involve a change at Reading, and thus how much benefit the proposal brings. 

My guess is that most of those travelling from South Wales to airports in London do so for leisure purposes rather than business purposes – which would make Gatwick a more likely destination.  It also seems that most of the services to Heathrow are likely to involve a change of train; and no matter how good or frequent the shuttle service from Reading to Heathrow, a change of train will always reduce to some extent the number of people choosing rail rather than road.

Linking into the European high speed rail network would be a definite plus, but from the information available to date, it appears that the link to HS2 is a one-way link – good for going north to Birmingham etc., but not for heading east to the Channel Tunnel, leading to a danger that the proposal encourages, rather than supplants, air travel to near continental destinations.

But the biggest claimed benefit is in terms of the boost to the economy, something for which I’ve seen no evidence at all.  Whilst it is clear that poor communications links can put us at a disadvantage, the negative doesn’t prove the positive, and I fear that the business benefits are being significantly over-hyped.

And one final question which none of the reports has answered as yet – is this an English project, which means a largish sum of capital money available for investment in Welsh infrastructure under the Barnett formula; or would I be right in suspecting that it will be regarded by the Treasury as a UK project - from which the Welsh share of the benefits is likely to be considerably less than the Welsh share of the costs?