Overcoming barriers to market access, and aviation strategy– 13/11/12

Please find below the notes from the recent panel discussion that was held on the 13^th November, 2012, on the topic of overcoming barriers to market access, and aviation strategy.

Panel

Nick de Bois MP, Vice Chair of the APPG
Stephen Aldersley, Goodfellow Cambridge Ltd
Stewart Ferguson, China-Britain Business Council (CBBC)
HE Roberto Jaguaribe, Ambassador of Brazil to the UK
Sian Foster, Virgin Atlantic
Nigel Milton, Heathrow
John Morris, Birmingham Airport

Stephen Aldersley was the first speaker, and discussed his company’s entrance into China, and the lessons he learnt.

• China was selected after making a contact at a British Consulate meeting, who then came back with an attractive proposal. Stephen then used the China-Britain Business Council’s services to analyse China as a market, and develop a presence ‘in market’ via the CBBC’s Launchpad service.
• He emphasised that whilst breaking into a market which you have no sales in can be intimidating, last year his company landed an order worth €4.5 million, when in 2006 he had 0. Similarly with contacts, he started with none and now has 65 – 70,000 people on his database. This was mainly due to the use of a Chinese website and regular trade shows.
• He noted key barriers as being; language and culture, business practices and bureaucracy, and the recruitment and retention of good staff.
• The key supporting organisations he found were the CBBC, Rouse & Co International and GAMBICA.

Stewart Ferguson, introduced the China-Britain Business Council, and shared his thoughts on SMEs and the taxation they face.

• The CBBC, which is made up of 1000 member companies, has been going under one name or another since 1953. This shows the longevity and commitment to the Chinese market. One of its primary services is to allow UK businesses to use its legal and physical position in China, for example, to recruit, employ, or represent their business. 70% of the businesses formed with the help of the CBBC last beyond three years.
• The CBBC supports UKTI primarily through their research on China as a market, including market opportunities and relations, but they also arrange various trade visits and trade exhibitions to encourage osmosis between the two countries. There are on average 2-3 trade delegations visiting the UK from China each week, and various banquets throughout the year.
• All these aspects mean that UK businesses are well supported, and understand China as a trading nation.
• The 3 opportunities that Stewart identified for Britain in the near future were;
  - Airport Development
  - Aviation Manufacture
  - Forming links between airlines with the aim of getting more flights.
• He identified two main barriers; firstly, China as a place and a culture can seem so remote and foreign that it can be incredibly difficult to get the initial momentum needed to begin your enterprise. This leads onto the second difficulty, which is that the isolation that some businesspeople feel leads them to cling onto the first contact they make that speaks their language and understands their ideas, instead of finding the most suitable person for their business.

Q&A

The first Q&A raised issues such as;

• Who should the first port of call be for a SME looking to penetrate China, UKTI or CBBC? For information on how the market works and initial contacts, you should seek UKTI (it’s just a coincidence that in China the CBBC offers this service). For more strategic and targeted information the CBBC is there to help.
• The British visa system could be made easier, but not necessarily more friendly.
• A big effort is made to take Chinese delegates out of London to explore the manufacturing centres in the UK, but with time constraints due to immigration rules, this can be difficult.

HE Roberto Jaguaribe described the relationship between the UK and Brazil as very good, and full of potential.

• Over the past 70 years the relationship has lost some of the intensity it once had, but this trend has changed significantly over the last three years. Investment from one country to the other is doing very well. There have been more British visits to Brazil over the last two years, than there were the preceding 8 years.
• The UK’s Education sector is particularly sought after, especially higher education. Brazil has just started a new programme, Science without Borders, where 100,000 students are given the chance to go abroad, with 10,000 coming to Britain.
• Innovation is a significant area for Brazilian progress. Within this, His Excellency identified infrastructure as a potential area of co operation, given both the UK’s competency in civil engineering, and the prowess that the City of London has in providing financial packages and assistance. There will be a drive to improve Brazil’s transport infrastructure, especially in terms of air-travel, water, and rail. This has been a growth strangle-point for the past couple of decades, and would prosper from British investment.
• The Oil industry was identified as being a lucrative source of future income. Brazil is investing in technology to mine the vast resources it has in the ‘pre-salt layer’, and this provides a bright possibility for interaction.

 Q&A

Questions following the Ambassador uncovered;

• There will be opportunities for small businesses in the Rio Olympics. This will be enforced during the planning of the event, and there will be specific funding arrangements to encourage SMEs.
• Instead of looking to the government to break big corporations down or restrain them, SMEs entering Brazil should look for local partners; an arrangement that would be mutually beneficial given Brazil’s tax regulations.
• Brazil is very happy with its relationship with UKTI. It is seen as fluid and fluent, and there is permanent co ordination. Situated between BIS and the FCO, it has the capacity to make a real change. After an informal show of hands, it was determined the vast majority of the room felt very positively towards UKTI.
• It is very expensive, both in time and money to enter Brazil as a SME; the example used in the meeting was for a medical manufacturer, who required various licenses, comprehensive audits of its entire holdings, and will then be met by high taxes. His Excellence accepted this, but offered that once inside there is a very simple tax system which favours joint ventures and partnerships.

Aviation Strategy

Sian Foster began her analysis of Aviation Strategy by pointing out that Virgin Atlantic is regularly written off as public transport, when in fact it is an exporter.

• Virgin sells connectivity to businesses, families, and friends. Whilst ICT can provide an alternative, there will always be value in meeting face to face.
• She notes that business trips account for £4 billion pounds being spent in Britain every year, and that Virgin sells £1 billion of connectivity abroad every year.
• Barriers to visiting Britain include;
  - Air Passenger Duty
  - Visa (considerable hassle as well as expense, given that a European visa will get you into the whole continent. UK visa is one of the most expensive, with the second next expensive costing half as much.
• Whilst the UK has spare capacity in its regional airports, it does not have spare hub capacity. This is an important distinction to be made. Virgin believes that the UK can only sustain one hub airport. The lack of capacity at Heathrow makes it difficult for airlines to grow, and Virgin would be happy to move elsewhere, if this was financially viable.
• Sian finished by explaining the need for hub capacity. Flying between Manchester and Hong Kong each year, there are 90,000 passengers. If Virgin was to fly one of its smaller aircraft on this route, with a load factor of 80%, it would require 140,000 passengers a year, leaving a shortfall of 50,000. The role of a hub airport is to consolidate passengers from everywhere to sustain flights like this one.

Nigel Milton stated that the UK has one of the highest concentrations of non EU headquarters in the world, but are starting to lose them to Frankfurt and Paris, due to a lack of hub capacity.

• Heathrow is the only airport in the UK that could fly to the remote Chinese cities which are starting to become more lucrative, because nowhere else can fill a plane with consolidated passengers from various locations.
• The efficiency savings of a hub were explained using a simple diagram. Connecting 8 points, ‘point-to-point’ takes 28 routes. Linking 9 points using a central hub takes only 8.
• He explained the idea of filling the plane to its ‘critical mass’ using passengers from other locations. Whilst only half of the plane may be full of passengers starting their journey at Heathrow, the other half of the plane is filled with people wanting to fly to the destination, and have flown to Heathrow to get there.
• The problem with the ‘Heathwick’ proposal (which a Gatwick representative later confirmed that they hadn’t been approached about) is that it will take 40 minutes longer than Heathrow currently does, which is already 15 minutes longer than Amsterdam.
• Nigel concluded firstly by stating that what he wants to see from the Davies commission is a clear hub strategy for Britain which sets out exactly what the country needs. He then drew the meeting’s attention to a report that Heathrow is bringing out, explaining its position on the hub capacity issue, and the options that it believes the UK has;
  - Do nothing and fall behind
  - Increase Heathrow’s capacity
  - Close Heathrow and build a new hub airport.

John Morris Identified his one goal from the Davies Commission, which is for meaningful results to be published that everyone can sign up to and implement. He also highlighted the need to separate what is best for UK PLC from what is best for the shareholders of the aviation industry.

• John mentioned the spare capacity that is available at regional airports, and suggested that if airlines don’t think there is a market there to make it viable, then they need to try harder. Advances in technology such as the 787 Dreamliner and the Airbus A350 will radically change the market over the next decade by substantially lowering the price of seats, and this has the potential to change the face of British aviation.
• Whilst everyone is talking about the crisis that Britain is heading towards in 10 years, John argued we are in crisis now. The four policy decisions he would like to see are;
  - A national concerted effort to change the perception that Heathrow is the country’s primary airport. The Government needs to promote the northern airports as the manufacture heartlands.
  - Variable Air Passenger Duty that could be tapered to subsidise new and remote routes.
  - Incentivise environmental reasons to land elsewhere, e.g. a congestion charge for the skies over London.
  - Greater coordination between airports and train networks so that tickets that take you across the country are simple to understand and book.

 Q&A

The final Q&A on Aviation Strategy yielded the following topics;

• The Ambassador commented that whilst the dearth of direct flights from Britain to Brazil is not going to stop business flying if it needs to, it would be far more facilitative if this could be rectified.
• The panel could not see the sense that HS2 is not linked directly with Heathrow; however they welcome the connectivity which Phase 2 of the project marks, especially with the northern cities. Having 50% of the population an hour from Heathrow or Birmingham airport would allow far greater flexibility in future transport policies.
• There is little that the Government could do to incentivise Virgin Atlantic to move to regional airports. Even with congestion charging or regional APD, the move still wouldn’t be financially viable.
• Whilst there isn’t enough demand for direct flights from Leeds, and on some routes, Manchester, it would seem to make sense to consolidate these airports with more efficient transport links between the two, in the very least.
• The majority of the panel believed it is a mistake that the Davies Commission won’t report until 2015.
• From a SME’s point of view, whilst a lack of direct flights to different Chinese provinces doesn’t strictly hold you back, it certainly constrains the choice you can make. When flying into a strange country, you don’t want to have to transfer there, and so in the case of Stephen Aldersley’s business, he had the ‘natural restriction’ of choosing between either Beijing or Shanghai because that’s where the UK flew to at that point.
• Air Passenger Duty does affect the choice of the UK as a destination. 80,000 non-UK residents wrote to the Chancellor in protest of any further increases in the tax.
• Tickets are more expensive nearer the time because the airlines know that you are more desperate.
• Regional airports disrupt the ability of hubs to consolidate and fill flights which can lead to routes being discarded, and UK PLC being damaged, however this must be considered against the re balancing effect they have on the economy.

Nick de Bois closed the meeting by referencing the London Gateway Port, a new deep sea port which is ideally placed to exploit a global lack of ports, and will bring a boost to the UK economy through both the trade and the logistics of running the port. It was first envisaged 20 years ago, and was considered for 16 years before it was implemented. It is both a success story and a cautionary tale.