Heathrow - More Political Prevarication and Delays

Ready to Split?

The FT today reports "deep splits" between the coalition parties over whether to build a third runway.   Actually both the Conservatives and Lib-Dems went into the last election rejecting the third runway option which the Labour government had already approved.  In the honeymoon period after the election there was no surprise when HTR3 was cancelled by the coalition having secured a number of West London seats. 

Now with increasing pressure from the industry, business and the unions as well as from evidence from positive independent academic studies the Tories are having to reconsider their position. Meantime the LibDems seem absolutely to have set their faces against any runway capacity expansion in the South-East. Unfortunately they are not saying how they would propose to maintain, let alone increase, the current UK economy's level of overseas trade without that extra capacity.   Hence the split.  

Its clear from the FT article today http://www.ft.com/cms/s/0/6bfb7010-c37b-11e1-ad80-00144feabdc0.html#axzz1zSEfGVCN  that as usual, delay rather than dispatch is the watchword on Westminster delivering a clear aviation policy, particularly as far as HTR3 is concerned.

A Government paper calling for evidence from the aviation industry as a whole about how to preserve the UK as an international hub is already three months overdue.  Sadly it now looks as if the Government will throw the ball back to the industry when that paper does come out the aim of which is to establish ways to preserve the UK as a leading aviation hub.  This also perhaps means that Government will be calling for a delay of several years before conclusions are arrived at from evidence supplied by the aviation industry.  The delay is presented as being in order "to give the industry time to develop properly costed responses".  This is so ironic in that the industry is absolutely clear that Heathrow is already a major European hub and that in order for it to continue as such it needs more capacity to compete with the likes of Frankfurt which has four runways.... 

The problem with politics is that politicians think in terms of the next election and how best to get a majority government.  This mind-set leads to short-term tactics driven by political expediency.  These criteria do not deliver the best strategies for ensuring long term economic success.  By delaying feedback from the industry for another couple of years and pushing back final decisions on airport strategy until potentially after the next election, the UK not only risks, but already is, being left left behind by its European rivals when it comes to connectivity to the growing markets of the Far East and South America. 

We all have to hope that the Eurozone crisis will be sorted out eventually.  That may take several if not a decade, years to achieve.  Sadly the delay in taking the vital decision about increasing UK airport capacity in the South East means that even if they do come up with a strategy,  lead times for runway expansion are typically at least five to seven of years.   Consequently, with surplus capacity already a fact in European competitors' airports,  by then the UK will be ill-placed to compete and will continue to loose ground to competitors for access to BRICS markets. 

Emirates Launches New "Trans-Thames Airline"

A New Cable Car Across the River Thames Sponsored by Emirates Took Flight Today

The cable car will allow pedestrians, wheelchair users and cyclists to cross the river Thames within five minutes, from terminals at Emirates Greenwich Peninsula and Emirates Royal Docks.

To sample the new "flight" view Transport for London's video impression of the ride across the Thames.   http://www.youtube.com/watch?v=Y0ZL06low8c&feature=player_embedded

Following the maiden flight Mayor Boris Johnson told newspaper The Independent: ‘Get on this cable car immediately. It’s beautiful, worth every penny and a stunning piece of engineering.’

More than 2,500 people will be able to use the Emirates Air Line every hour, which will operate every day between 7am and 9pm, staying open for an extra hour on Saturdays and opening two hours later on Sundays.

Using the cable car will cost £3.20 for Oyster card users, while 'frequent flyer' tickets can also be purchased.


Read more: http://www.metro.co.uk/news/903523-boris-johnson-launches-emirates-air-line-cable-car-above-river-thames#ixzz1z5NUFCGF

OMG - George Is Being Practical Again! Petrol Duty Frozen

When is a U-Turn Not a U-Turn?

I know I have only mentioned forecourt petrol prices in the context of Brent Crude prices falling and the effect that has on jet fuel prices.  However UK motoring and haulage  firmly costs are absolutely linked to the Brent price which today is just over $92 per barrel.  The near 30% drop in Brent prices recently has seen forecourt prices (mercifully) falling  to £ 129.9 pence per litre in my local garage which equates to £5.91 a gallon in the old pre-litre prices.

Today the UK's Daily Mail front page  trumpeted another U-turn by the Chencellor.  His last budget did produced some real howlers which he has since had to cancel to the media's delight e.g. VAT on hot pasties.......Only a Treasury accountant/economist could dream that one up!! 

However back to the "U-turn" today - Only it wasn't really a u-turn at all.  It was a cancellation of a budget  increase in petrol duty inherited from the last Government.  Mr Osborne apparently did not  even tell the PM about dropping the planned 3p per litre rise - the good news though is it will now be cheaper for the PM to go to his local pub with his family - maybe the savings can be put to use getting a tracker for his young daughter!.  Mr Osborne said today that including the cancelled January rise- also inherited from the previous Government motorist are now 10p a litre better off than under the Labout plans. 

Given the short notice of the announcement perhaps Ed Balls, Labour's shadow Chancellor, can be forgiven for calling today's duty freeze "...the fastest u-turn in history" conveniently forgetting it was the Labour Government who had introduced the duty rises in the first place - not the Chancellor. 

Given that we are in an austerity period the loss of revenue will not now help reduce the UK's deficit.  However the Chancellor claimed that the loss of revenue would be recovered from savings at the Treasury (Maybe from the Treasury Canteen no longer having to pay 20% VAT on pasties and hot pies....?)

Whilst the subject is topical it would be good to recall that drivers conribute a huge chunck of revenue to the Exchequer each year.  Last October the City firm of Wood Mackenzie published research which showed the breakdown of the pum price for petrol. Of an average price per litre of 134.1p SIXTY percent goes to the Treasury:-

Cost of the oil         45.2p
Refining Cost            1.5p
Fuel Duty                58.0p
VAT                        22.4p
That leaves 7.1p for the retailer.  Earlier in the week Transport Secretary Justine Greening, apparently unaware of the forthcoming announcement, said that the oil compaines should reduce prices rather than the Government forgoe Labour's planned 3p rise .  With 61 % of the price of a litre going to the Treasury and just under 2.5% to the oil companies perhaps the fairest option was George Osborne's decision not to add another 3p per litre.  I am all for U-Turns that make my cost of living cheaper!!! Bring 'em on!!

Heathrow - A "Practical Politician" Proposes Mixed Mode at Heathrow

'Mixed Mode' May Now Be A La Mode

The Times and the Daily Telegraph reported this week-end  that George Osborne has been championing plans to increase drastically the number of flights at Heathrow – without building a third runway. The Chancellor has secretly been pushing ‘mixed mode’ proposals that would see more than 1,000 extra flights a week and as many as 20m more passengers each year.  The aviation industry supports a third Heathrow runway because it will allow for 240,000 more flights a year but 'mixed mode' will only allow for a quarter of that number. 

What is ‘Mixed Mode’?  At present Heathrow confines arrivals to one runway at a time, and BA analysts have found that strong headwinds frequently lead to reductions in the optimum arrival rate set by air traffic controllers.  For example, Heathrow was subject to air traffic control restrictions on arrivals on 276 days in 2006 compared with just 52 days at Gatwick.

Gatwick with its single runway, however, uses a ‘mixed mode’ operation where landings and take-offs are sequenced on the same runway. This means arrivals can be maintained at a consistent rate in windy conditions because separation between arrivals is greater to allow for intervening  departures. Typically this means that Gatwick can generate more take-offs and landings per runway per hour - typically 48 - while Heathrow averages 42. A change to Mixed Mode at Heathrow would bring immediate relief to the 99% capacity situation there which has led to calls for a third runway. 

In another statement reported in the media this week-end, Gatwick's chief executive, Stewart Wingate says that Gatwick intends to resurrect proposals for a second runway this summer.  It already has an ambition to be London's leading/favourite airport.  A second runway, for which land has already been set aside, would allow it to exploit the growing number of Far East destinations which has been one of the reasons for proposals by Heathrow for a third runway.   However, Gatwick is not allowed to have a second runway until 2019 and it will be interesting to see what Gatwick's new owners since 2009, Global Infrastucture Partners, are going to propose.

Banks and the Eurozone & International Economic Crisis

Bring Back Old Fashioned High Street Banking -  Why Should Ordinary Customers Funds or Sureties Be Exposed to Speculative  Markets and Trades?

With Moody's downgrading yesterday of 15 of the worlds biggest banks, thus making it more expensive for them to borrow, the banking world staggers on in an apparent downward slope which no one seems to know how to reverse.

I am not an economist.  Far from it.  However like most of us I am blessed with a certain amount of 'common sense'.  Also, having worked in the City as a commodity & financial futures broker/analyst and then as a Financial PR consultant  for well over 25 years, I have seen a number of economic cycles.  During that time I also witnessed the convergence of  various parts of the financial and business sectors. Stockbrokers and banks as well as so-called secondary and tertiary banks all wanted a piece of the commodity futures action when the stock market went into the doldrums.   Inflation was rampant and commodity trading was percieved to be the way to make money.  It wasn't just individuals that got the commodity futures fever but stockbrokers and banks as well.  Having got a taste for it Banks then looked for other opportunities outside their traditional areas of operation.  Trouble was 90% of senior management did not understand the mechanisms of these arcane arts. Consequently they had not a clue how to manage (control) the trading activities of the young traders who seemed to be able to produce huge amounts of money.  The demise of Barings Bank was a tragic consequence of that ignorance.

In the 1970s a young professor of economics named Rich Sandor designed the first financial futures product which was launched on the Chicago Board Of Trade futures market.   He also coined the word "Derivatives" .  The contract allowed the financial sector to hedge interest rates as it was based on securitising (bundling) numbers of mortgages on homes  - thus the "GinnieMae" and "FannyMae" contracts were born.  Given that these were underwritten by the US Government i.e. respectively Government and Federal backed mortgages they were a great way to manage fluctuating interest rate risk.  However the inventiveness and "Gordon Gekko" greed of the financial sector resulted in an ever growing mountain of several times rebundled derivatives of all sorts.  The eventual collapse of this inverted triangle of multi layered derivatives we now know to have triggered the current banking crisis in the US.   The  knock-on effect of which we are now all suffering from.

So we should ask the question? - Should high street banks be involved with the high risk business of trading high risk financial instruments just because they are there?  When Mr & Mrs Average put their money into a current or saving account forty years ago that generally meant that the bank was not exposing their money to the vagaries of market trading.  That was the business of the old "merchant banks" - and Barings became a victim of the markets.   It's recently been clearly demonstrated that even the largest banks e.g. in the US, can fail when they are over-exposed to market risk.  Now, several of the largest that have survived have just been stripped of their AAA credit ratings because of the consequences of that exposure.  There is also the element of an all too prevalent "Gordon Gekko" management mentality amongst banls on both sides of the Atlantic.

As I said I am not an economist but it seems to me that if the High Street banks were now to be restricted to their traditional role of lending to businesses and individuals (entrepreneurs and Joe Public) the economy might have a chance of mending itself.  SMEs (small and medium enterprises) are the usual regenerators of the economy.  At present, despite a Base Rate of 0.5% they are apparently being starved of funds because the banks are involved with other areas of high risk banking which require significant reserves.  That might make for great bonus opportunities for bank executives but it also begs the question, why should our banks' business and private customers be exposed to the risks involved with the trading of derivatives and other exotic financial instruments.  

There has been talk of ring-fencing high street banking from its more glamourous and risky trading side 'opportunities'.  Perhaps now is a good time to introduce it as part of the mix being proposed by those celestial financial bodies and Governments currently proposing solutions to the Eurozone crisis.

G20 Leaders Flag International Tourism As a Driver of Jobs & Growth

Los Cabos - G20 Try to Chart a Way Past Economic Rocks

The G20 summit leaders have for the first time flagged up tourism as a positive force for economic growth and job creation

The Leaders’ Declaration from the annual meeting, this year held in Mexico at Los Cabos, stated: “We recognise the role of travel and tourism as a vehicle for job creation, economic growth and development, and, while recognising the sovereign right of States to control the entry of foreign nationals, we will work towards developing travel facilitation initiatives in support of job creation, quality work, poverty reduction and global growth.” 
Whilst the global tourism and travel industries have known about the positive aspects about tourism mentioned in the statement, very often national governments have only seen it as a useful revenue raising asset rather than an industry to be encouraged.  The WTTC (World Travel & Tourism Council) says the industry will directly contribute $2 trillion in GDP and 100 million jobs to the global economy in 2012. When the wider economic impacts of the industry are taken into account, tourism is forecast to contribute some $6.5 trillion to the global economy and generate 260 million jobs - or one in 12 of all jobs on the planet.

I hope George Osborne was a party to the G20 statement! The UK's Air Passenger Duty is not only a barrier to tourism and business but is also a regressive tax that hurts the people most of all that can ill-afford it .  It also hurts developing countries by reducing the number of Brit tourists visiting their countries.  Today the Caribbean Tourist body again renewed its calls to the Chancellor to cut the tax.  A delegation came last year to London to plead that the 4000 - 6000 mile Band which the region is in (Barbados by only 250 miles) is grossly unfair when flying to Hawaii is in the 2000-4000 band even though it on the other side of the world....

Another UK tax which must hurt inbound tourism is VAT at 20% on hotel accommodation.  The French recognise that Hotels are a vital element in tourism - they charge VAT at 5.5% and allow their cities to charge a local tax on a per person per night basis which is usually a modest  Euros 0.5 to 1.5.  Despite the UK Hospitality industry calling for a reduction in Hotel VAT, no UK Chancellor has yet to act.  Plenty of noise about promoting the UK but nothing to make visiting and staying here cheaper, which is what every tourist looks for. 

Some MPs in Westminster obviously do recognise that the effect of APD on the UK economy should be properly investigated as 25 all-party MPs have just called for an independent study to assess the actual effect of APD to be presented before the 2013 Budget.    It's an idea which has been proposed by the industry before (by IAG's Willie Walsh when he was head of BA I think I recall).    Of course anything quite so radical and also something that might just prove the damage APD is doing overall to the UK was ignored in case it might do so.   One might hope that the oft quoted fact that the Dutch dropped their version of APD after a year might serve as a warning to the Treasury here.  However the siren call of the estimated £2.2 billion or more that APD is bringing into the treasury coffers has deafened the Government to that fact and the widespread public and industry antipathy to APD. The Dutch tax raised a fraction of what the tax actually cost the country overall as a direct result of bringing it in.  I guess as a Chancellor you can actually count the revenue coming in but only estimate what might have been gained for the economy as a whole without APD.  Lets hope the 25 Westminster MP's get their way and that the debate about APD finally gets an independent study to throw an unbiased light on it.

Brent Oil Price Continues Decline - US Oil Inventories Hit 21 year High

US Oil Inventories UP

Just a month ago when Stowawae spotted a "double-top" on the Brent Crude Oil price chart Brent Crude was at US$110 a barrel.  Today it is $29 lower.  One reason is that US oil inventories are at 21 year highs due to a sluggish US economy.   Market opinion seems to be that there may be another $5 to go on the downside (in fact the day after posting this it is now $89) -  However anything below $90 is going to get OPEC very concerned and there will be calls by most members for the Saudis and the few other members with spare capacity to cut production. 

One unlikely scenario at present is that sanctions against Iran will be lifted allowing exports of their oil to the West.  Sanctions will remain whilst Iran and the West are deadlocked about Iran's nuclear programme which the West believes is aimed at producing nuclear weapons rather than energy production as Iran claims.   Opec would like to see oil in a price range of $100 to £110 and by tweaking production could probably achieve this as long as world demand does not fall further from its present level. 

It would certainly be nice if the price of petrol could come down further.  One forecourt I saw (but avoided!) last week was charging £1.43 a litre!!!!! Not far down the road the price was the more usual £1.33.   Guess which one I went to?   With the benchmark Brent Crude price now well under US$100,  hopefully the fuel surcharge that air passengers now pay will be reviewed and reduced by airlines.  Having said that, the first quarter accounts of IAG, parent company of both BA and Spain's Iberia, showed that it made a Q1 loss of $189 million which it attributed to high fuel and other costs.  It's therefore possible that a prolonged period of  lower fuel prices will be needed before airlines respond on their fuel surcharges.