Failure to reopen key UK-US airline routes will cost the coronavirus-hit economy £11 billion this year, a new study warns.

The research was jointly commissioned by Airlines UK, British Airways owner International Airlines Group, Heathrow and aviation services firm Collinson Group.

The number of seats on aircraft between the UK and US dropped by 92% in April compared with a year earlier. Capacity was still down by 85% in September despite a marginal rise in recent months.

The decline in travel between the two countries, including visitors and trade, would cost the UK economy at least £11 billion by the end of the year.

The closed air corridor between the US and the UK will be costing the UK economy £32 million each day from the start of October, according to the research.

The US is the largest single source of inbound tourism and business travel to the UK, with spending from this group amounting to £3.8 billion in 2019. It is expected to drop to just £700 million this year.

The report from consultancy York Aviation concludes that while the closed border has had a major impact on the aviation sector, the impact across the entire UK economy is “devastating”.

British travellers are currently banned from entering the US while those arriving from the US into the UK are required to isolate for two weeks.

Airlines want a two-test solution to be trialled on the London-New York route in which passengers are screened on departure or arrival followed by a second test up to five days later. Two negative results would release passengers from the need to quarantine for two weeks.

Talks between the Department for Transport and its US counterpart over a trial programme between the two cities, the world’s busiest long-haul route, have been held.

But sources indicated the process had stalled as attention is increasingly focused on combating a second wave of the virus, according to the newspaper.

The boss of Heathrow, which has set up a testing facility capable of carrying out 13,000 tests a day, has insisted it would use private laboratories not used by the NHS to avoid adding further pressure on the system. The PCR test detects the presence of Covid-19 on a saliva swab.

The London hub’s chief executive John Holland-Kaye said: “This is a stark warning that action is needed immediately to safely open up connections with our key trading partners in the US.

“We can start with flights to New York, a city where infection rates are now lower than here, and which is the UK’s most valuable route. PCR testing in private labs, both pre-flight and on arrival, would ensure there is no risk of importing Covid and could pave the way to a common international standard for aviation testing.”

Airport-based Covid-19 testing is already being carried out by more than 30 countries. It is in use at more than half the world’s busiest airports including Paris Charles de Gaulle, Tokyo Haneda and Dubai International.

BA chief executive Álex Cruz said: “Government inaction on aviation and its impact on Britain’s economy couldn’t be clearer. Time is running out. Ministers must reach agreement with their US counterparts on a testing regime that minimises quarantine and permits regional travel corridors to reopen the UK-US market.”

Virgin Atlantic chef executive Shai Weiss said: “Our economic recovery will not take off without the free movement of people and goods.

“The closure of the US border since mid-March, coupled with the UK’s 14-day quarantine policy, effectively cuts us off from our most important economic partner.

“We need urgent government action now to introduce regional travel corridors for mainland US states, starting with New York and New Jersey where infection rates are lower than in the UK.

“Fourteen-day quarantine must be replaced by a robust passenger testing regime for countries and regions where the risk is higher.

“More than 30 countries have already stolen a march and introduced passenger testing. If we don’t act now Britain will be left even further behind, putting many more thousands of jobs at risk across the country.”

Tim Alderslade, chief executive of trade body Airlines UK, said: “In the absence of a vaccine, testing for arriving passengers, alongside regional travel corridors, remains the only way to resume international travel.”

The report came as retail, leisure and tourism leaders across Britain wrote to Rishi Sunak urging him to reinstate tax-free shopping for international visitors to secure an immediate £5.6 billion boost to the UK and avoid up to a £10 billion loss to the wider visitor economy.

The Association of International Retail alongside the bosses of leading tourism, retail and real estate businesses including Marks & Spencer, Manchester airport, Heathrow and Fenwick voiced concern over Treasury plans to close tax-free shopping at the end of the year.

The decision undermines Britain’s £22 billion tourism industry and will cost 70,000 retail jobs and £10 billion1 in lost visitor economy trade at a time when the industry is ‘already reeling from the impact of COVID-19’ according to the letter.

The letter to the chancellor highlights VisitBritain figures showing that shopping is one of the most popular reasons for overseas visitors.

It warns that the government is throwing away the opportunity to receive an extra £2.1 billion of sales from visitors from the EU who would have been eligible for the scheme after Brexit, meaning that the total hit to the economy of the decision is £5.6 billion.

Tax-free shopping initiatives similar to the UK’s VAT Retail Export Scheme are common around the world, with governments waiving local sales taxes to attract tourist spending across the wider economy.

They also recognise that many visitors incur import duties on goods when they return home.

Most countries have digitised their schemes, something that the letter highlights that the HMRC has been promising and failing to deliver for years.

The signatories to the letter have offered to implement such a solution immediately at no cost to the tax-payer in recognition of the importance of the scheme to their livelihoods,

Jane Sharrocks, chair of Manchester Business Improvement District, said: “The decision to withdraw tax free shopping entirely rather than extending it to the EU will have untold impact on the local economy in Manchester and the UK economy as a whole.

“International visitors and their tax-free spending are supported by a wider tourism ecosystem beyond just retail, including leisure, hospitality and travel.”

A Treasury spokesman told the BBC: “We’re making use of the end of the transition period to bring our personal duty and tax systems in line with international norms.

“This was subject to a full consultation, and VAT-free shopping is still available because retailers are able to offer it to overseas visitors who purchase items in store and have them sent directly to their home addresses.”