7 FUTURE PERFORMANCE OF THE SCHEME
7.1.1 This section focuses on the future performance of the scheme and reviews a number of enhancements to the scheme that could be introduced in the future. It also provides a brief overview of some of the associated environmental impacts of the scheme.
7.2 Increasing the discount to 50%
7.2.1 One potential enhancement that could be investigated further is increasing the discount to 50% as the most important reason for ADS members for not using the scheme was that they felt air fares were still too high. Non-users were generally on lower income compared to ADS users, indicating that income level remains a barrier to air travel.
7.2.2 Some stakeholders also believed that air fares are still too high for many individuals and the discount should be increased further to at least 50% as approved by the European Commission. One comment was that increasing the discount to 50% could have a psychological "half-price" effect and therefore may have a more significant impact on demand.
7.2.3 Using price elasticities for air travel demand based on a study undertaken by the Aviation and Travel Consultancy on "An Expanded Air Services Network for the Highlands and Islands" in 2003, it is estimated that demand for air services would increase by 7.5% for business travel and 12.5% for non-business travel if the price for air fares were to be reduced by 10%.
7.2.4 The average number of monthly passengers was around 13,000 in 2007. In our survey, a total of 40% of trips undertaken were business trips. Applying this to the monthly passenger average of 13,000, it is estimated that 5,200 trips are undertaken for business purposes and 7,800 trips for non-business purposes.
7.2.5 A rise of the discount to 50% would decrease air fares by around 10% and as a result it is estimated that monthly demand for business trips would increase to 5,590 and demand for non-business trips to 8,775. The total monthly demand for air travel would be around 14,365 on average.
7.2.6 The subsidy provided by the government for the ADS has been around £450,000 on average per month in 2007 based on a 40% discount and approximately 13,000 passengers per month over the year. This represents a subsidy of around £34 per passenger.
7.2.7 If the discount were to be increased to 50%, the subsidy would have to increase by 25% to around £42.50 per passenger. If the demand increases in line with the elasticities referred to above, the total monthly subsidy paid by the government would be £610,500. Consequently, the additional cost to government of increasing the discount to 50% would be £1.9 million per annum. Overall, the cost to government per annum would be estimated at £7.3 million.
7.2.8 Overall, this means that the estimated marginal increase in passenger numbers (10%) is considerably lower than the marginal increase in subsidy (35%). As a result, it could be argued that increasing the subsidy to 50% does not represent a value for money solution, although the socio-economic benefits that may come from such a change would need to be considered in more detail.
7.2.9 In addition, consideration should also be given regarding whether the discount could progressively be reduced in the future through a staged reduction in subsidy. It would be worthwhile considering whether there are any milestones which, when met, (such as average air fares as a % of median earnings and air route demand and capacity) would justify the reduction in the % discount. There is currently no formalised mechanism through which any reduction in the discount could be considered and no clear exit strategy exists for the scheme.
7.3 Extending the ADS to family members
7.3.1 Many respondents also suggested that the scheme should be extended to family members who are not resident in one of the eligible reasons, but were born and grew up there, to give them an affordable choice to visit relatives on the islands.
7.3.2 It has been suggested that if it is possible to include students who study away from home into the scheme, it should also be possible to include first generation family members who work and live on the mainland. Consequently, many believe that family members living on the mainland who can prove that their parents live in one of the eligible regions or that they were born there, should also be given access to the scheme.
7.3.3 The cost to government of extending the scheme to family members could potentially be high. Assuming each ADS member could name one family member that is resident on the Scottish mainland and the usage of the scheme would also be at approximately 34%, then the cost to government of subsidising air travel under the ADS would potentially double.
7.3.4 As the main objective of the scheme is to give remote communities in the Highlands and Islands the air services they need to support accessibility and social inclusion at an affordable price, extending the scheme to non-resident family members would go beyond the objectives of the scheme. Furthermore, the approval of the European Commission is limited to subsidising residents of the most remote regions in the Scottish Highlands and Islands, not their family members on the mainland.
7.4 Extending the ADS to all non-residents
7.4.1 Many stakeholders indicated that the main failure of the ADS is that it does not encourage inbound traffic as for example an extension of the scheme to non-residents would do. Consequently, some stakeholders raised concerns that the scheme does not support the fragile economies of the regions as it encourages people to leave the island and spend their money in the main economic centres of Scotland. This might have positive social impacts on the population in the short-term, but in the long-term could have a more negative economic impact on the islands.
7.4.2 However, it was also highlighted that by some stakeholders that there could be insufficient infrastructure in many eligible regions to accommodate increasing inbound traffic. Particularly on the Western Isles, hotels and B&Bs (bed and breakfasts) were not felt to be sufficiently available for a large increase in tourists.
7.4.3 One major issue is that extending the scheme to non-residents would be mainly based on economic objectives and therefore, be beyond the social objectives of the ADS, which has been approved by the European Commission on the basis of an 'aid of a social character scheme'.
7.5 Amendments to the geographical coverage of the ADS
7.5.1 The eligible areas consist of the Western Isles, Orkney, Shetland, Islay and Jura, Caithness and North-West Sutherland. The discount is applicable to all scheduled flights to and from any airport within the eligible area to one of the four main Scottish airports - Glasgow, Edinburgh, Aberdeen and Inverness - as well as to other airports within the eligible areas. Some air routes in the Highlands and Islands are not included within the scheme as they are served by Public Service Obligation ( PSO) air services, such as the services from Barra, Campbeltown and Tiree to Glasgow.
7.5.2 It would not be possible to extend the scheme to air routes covered by PSOs as these air fares are specifically regulated under these obligations rather than being set by the airline operators. This means that the air routes servicing Barra, Tiree and Campbeltown could not be included in the scheme. There will be further expansion of air services in the Highlands and Islands with the development of the airport in Oban, which will service the islands of Coll and Colonsay. These services will also be subject to a PSO and so would not be eligible for the ADS.
7.5.3 Initially, there was some debate about whether Wick airport, and which services in Caithness and North West Sutherland, should be included in the ADS, or whether the scheme should focus purely on island locations. The findings from this review suggest that passenger numbers on air routes to and from Wick airport were over 25% higher as a result of the ADS, higher than at any other participating airport. The stakeholder interviews also underlined the vital importance of the ADS for Wick airport, in particular. Overall, this would tend to support the inclusion of Wick airport in the ADS, which would be adversely affected if it were removed from the scheme.
7.6 ADS and the environmental impact of air travel
7.6.1 When assessing the environmental externalities of air travel, most stakeholders highlighted that these have to be weighed against the corresponding economic and social benefits that also arise, with air travel in the Highlands and Islands making an important contribution to social and economic inclusion in more rural communities.
7.6.2 While there has been increased capacity and frequency on a number of air routes in Scotland eligible for ADS, the overall seat capacity on the Loganair network has remained relatively stable, with the focus being on more direct routes across the network to the Northern and Western Isles, which no longer stop in Wick or Inverness. This has better aligned direct routes with passenger traffic on the air network, by providing faster connections between the origin and destination for most air passengers. Therefore, any resultant environmental impacts of the increase in direct flights to the Northern and Western Isles has been balanced to some extent by a reduction in flight capacity to and from Inverness and Wick.
7.6.3 Research commissioned by Highlands and Islands Enterprise to assess the environmental impact of aviation in the region 6 estimated that annual carbon emissions from the air services operating to and from the Highlands and Islands contributed 0.2% of overall CO2 emissions from aviation for the whole of the UK. The research also suggested that overall air travel in the Highlands and Islands contributed an average of 86kg CO2 per passenger compared to 90kg CO2 from the comparative car and ferry journey (based on one passenger per car). However, the number of people travelling in a car has an impact on average carbon emissions per passenger. When the number of passengers increases, travelling by car and ferry generates less emissions per passenger compared to air travel.
7.6.4 Our analysis of displacement and modal shift underlines that the main impacts arising as a result of the ADS has been on trips by ferry and private car. Where there are journeys by private car by single occupants, the switch to air travel could have the effect of lowering the resultant CO2 emissions related to the journey, particularly on journeys where the surface route is longer (such as the journey by car from Wick to Aberdeen). However, this does not include the warming effect of aircraft emissions, which has also been cited (by the Intergovernmental Panel on Climate Change) as making a further significant contribution to climate change. While this factor will be less important in the Highlands and Islands due to the lower elevation of the planes, it will still have a greater effect than cars and ferries due to the greater proximity of the aircraft to the upper atmosphere.
7.6.5 Overall, stakeholders underlined that there are a number of competing factors that will influence the net environmental impacts arising from the ADS. In assessing the marginal change in environmental impact attributable to the ADS on the environment, a much more detailed and extensive analysis would need to be undertaken.