BELFAST BRIEFING:A direct air link between Belfast and the US is key for attracting business investors

WHEN THE New York Stock Exchange first began considering Northern Ireland as a location for an investment that could potentially create hundreds of jobs, what do you imagine was on its shopping list?

The presence of highly skilled people was probably at the top, but you can bet that behind the possible financial assistance on offer and the obviously attractive locations, was also the fact that Belfast had a direct air link with North America.

According to the North’s business development agency, NYSE is not the only US inward investor who values a direct transatlantic route. Invest NI says a number of its clients have “expressly stated” that the “direct air access to the eastern seaboard” is a key consideration for investors.

So the fact that the airline currently operating the only air link between North America and Northern Ireland is extremely unhappy about UK air passenger taxes is causing more than a ripple of turbulence in the local economy.

Continental Airlines, which carries about 100,000 passengers every year between Belfast and Newark, has revealed that the route is actually loss-making.

According to Bob Schumacher, the airline’s managing director of sales for Britain and Ireland, the “full responsibility for the financial losses” that Continental is suffering lies squarely on the shoulders of the UK’s air passenger duty rates.

Schumacher says the airline has paid just over £1 million to date in air passenger duty to the UK treasury and is likely to pay in the region of £3.2 million for the full year. For an airline which states up front that it is in Northern Ireland to make “profit”, it is a worrying state of affairs.

Continental Airlines launched its Newark route in 2005. Although the service was profitable in the past, several hikes in air passenger duty has grounded Continental in terms of profitability on the route.

Schumacher says the airline is “committed” to the Northern Ireland-Newark service but he warns that the constant “leak out of our pocket of approximately seven weeks’ worth of total revenue . . . to 11 Downing Street” is not something that can continue indefinitely. “Absolute certainty is something no one can say in business,” he adds.

The airline says the fact that its load factor out of Belfast is similar to its Dublin route shows there is demand for the service.

Continental says it has strong demand from corporate customers – from NYSE to Caterpillar – who value the service as the only air link between North America and Northern Ireland. Regardless of popularity, though, the airline says the economics are “prejudiced” against it.

One of Continental’s inherent problems with the route is its “proximity to Dublin” where the air tax is much lower. Continental is in effect competing with itself on the island.

Linda Brown, from the Institute of Directors in Northern Ireland, says many business travellers now opt to use Dublin because of the lower tax rates. Brown says that even short-haul domestic and European routes are cheaper for families or groups flying from Dublin than from Belfast.

“The resulting competitive disadvantage puts at risk around £20 million per annum contribution to the Northern Ireland economy from inbound tourism and foreign direct investment,” she warns.

Continental Airlines notes that a family of four travelling from Belfast to Newark will pay £240 in taxes. “If they go on the modern road to Dublin airport, they are paying €12, so in other words, they are paying 20 times more in departure tax in Belfast than they are in Dublin. That differential is going to increase when the Irish Government gets rid of the tax altogether.”

The bottom line for the airline is that it is paying between £60 and £120 a head. At the moment, it is forced to “absorb the duty” to ensure passengers “do not leak over the Border to services in Dublin”. However at some point, someone somewhere will say “enough is enough”, Schumacher says.

“Why would you continue to operate just 120 miles north into an airport where you continue to lose money because of air passenger duty, when you could operate out of Dublin and have done for many more years than you have operated out of Belfast, successfully and profitably?”

John Doran, managing director of Belfast International Airport, says it is time to level the playing field with the Republic.He would like to see air as a tax-raising power devolved to the North’s Executive.

“Air passenger duty is bad for airlines, bad for passengers and tourism and bad for NI plc. It threatens what is already there and makes the job of attracting new carriers enormously difficult.”

Brian Ambrose, chief executive of George Best Belfast City Airport, says it should also be remembered that the air tax affects all air passengers in Northern Ireland.

“The debate should not centre on one particular route. On some services, it can account for 50 per cent of the total cost of a return flight from Belfast to Britain.

“I believe it [the duty] has cost Northern Ireland in the region of one million passengers in recent years and every effort should be made to level the playing field and allow us to recoup this number.”