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July 2009
CONTENTS
ABOUT US
As an island nation the ability to move people At a time of recession it has become acutely
and goods effectively and quickly to and from apparent how important connectivity is for the
these shores is of vital importance to British UK economy as businesses seek to develop new
business. As a trading nation we rely on our opportunities that will allow them to prosper. Yet
ability to connect with the rest of the world. without additional capacity at our major hub the
UK will continue to fall behind its competitors.
Many of the industries in which we are globally The age old phrase ‘time is money’ is apt as we
competitive, such as electronics, look for solutions going forward. We must invest
pharmaceuticals, biotechnology, insurance and
now to safeguard our economic future.
telecommunications, are dependent on aviation.
No other form of transport can match aviation in The British Chambers of Commerce has
its speed, efficiency and global reach. Airports commissioned this report specifically to highlight
are gateways to the world, vital for business the economic benefits of hub airports to the UK
activity, family and leisure travel. economy.
3
EXECUTIVE SUMMARY
I This report, commissioned by the British Chambers of Commerce and undertaken by leading
economics and transport consultancy Colin Buchanan, examines the economic impacts, in
relation to business users, of hub airports and of expanding Heathrow.
I The report examines the widely accepted link between UK economic growth and connectivity,
the role of hub airports in delivering that connectivity, and the economic impact of removing
current capacity constraints at Heathrow, the UK’s only hub airport (Section 1).
I Hub airports allow airlines to offer a comprehensive global network. Because of Heathrow’s
transferring passengers, UK businesses have access to more direct destinations, at higher
frequencies and lower priced fares.
I But scarce capacity means that over the past 20 years Heathrow has fallen from 1st in Europe
to 5th in terms of destinations served, the number of UK regional cities it serves has fallen
from 21 to 6 and Heathrow has fallen behind its rivals in serving the growing BRIC (Brazil,
Russia, India, China) economies.
I Adding capacity at Heathrow would deliver more destinations, greater frequencies and fewer
delays in the short-term; and make the UK more competitive for investment, particularly from
emerging markets, and enhance productivity and connectivity in the longer term (Section 2).
I Using proven methodology and conservative assumptions, the report suggests that economic
benefits would include £8.6bn-£12.8bn Present Value (PV)* in direct productivity plus £20bn
(PV) in wider economic benefits (Sections 3 and 4).
I The wider economic benefits, valued at £20bn PV over 60 years, are higher than those found
for major rail schemes such as High Speed 1 (£3.8bn PV) and even greater than the £10bn PV
estimated for high speed rail to the North (Section 4).
I Investment in airport expansion would be borne by the private sector, whereas most rail
infrastructure investments would be funded by the taxpayer.
I High speed rail would provide a good complement to any airport capacity expansion plan. But
on its own, use of high speed rail would do little to alleviate the current capacity constraints at
Heathrow, as eliminating current UK flights (except Belfast) would free up around 9.7% of slots
if all air passengers transferred to rail.
I For every year that hub capacity expansion fails to happen, the economy loses £900m-£1.1bn.
If a Thames Estuary hub took 20 years longer than Heathrow expansion, the UK economy
* PV (Present Value) is a
would lose between £8.9 and £10.9 billion* (Section 5).
standard method for
expressing and comparing
the outcome of specific
investment decisions. We
calculate benefits year-on-
year for the duration of the
appraisal period and then CONTEXT high quality transport infrastructure to British
express them as a single PV.
The PV is a way of
The British Chambers of Commerce (BCC) is the business and the wider economy, and the
expressing a stream of costs national body for the network of Accredited intensity of the political and media debate
or benefits as a single value. Chambers of Commerce across the UK, serving surrounding the proposed third runway at
It takes the benefit for each
year and discounts it to what not only the Chambers and their member Heathrow, the BCC is concerned about the lack
that benefit would be worth businesses but also the wider business of understanding of the economics of hub
at today's prices. Discounting
community. airports, and the economic impact of expanding
allows for depreciation in the
value of money over time - the UK’s hub at Heathrow.
so for instance, a benefit of
On 15 January the Secretary of State for
£100 this year is worth more Transport confirmed the Government’s support This report therefore aims to fill this knowledge
than £100 in ten years' time. for a third runway at Heathrow Airport, the UK’s gap, adding a fuller understanding of economic
The discount rate that has
been applied is in line with only hub airport – by any standards a impacts of hub airports to the context for future
government appraisal controversial decision. Given the importance of planning.
guidance.
4
EXECUTIVE SUMMARY
5
EXECUTIVE SUMMARY
I
discounted and shown as a Present Value (PV),
Enable airlines to consolidate operations at a
expressed in current prices (3.3.1). The results of
single airport
the scenarios that have been assessed indicate
I Increased competition that the economic impact of adding capacity at
Heathrow would be in the region of £300m-
In discussions with airlines they felt their present
£500m a year. Expressed as a PV over 60 years,
schedules were not frequent enough to allow
not adding capacity at Heathrow would cost the
them to compete on key business routes, nor
economy between £8.6bn-£12.8bn in lost
were they able to add new routes to markets
productivity (3.4.1).
they felt were underserved such as China, India,
Africa and Latin America. There was also a Those figures only relate to the benefit
desire to restore UK domestic flights to act as associated with time savings – the wider
6
EXECUTIVE SUMMARY
economic benefits are considered in Section 4. I There are very substantial economic gains to
The results suggest that in general a substantial UK plc that would be made from hub airport
proportion of benefits derive from the potential expansion. The report suggests that those
increase in frequency to regional and benefits would include £8.6bn-£12.8bn (PV)
international destinations. This fits well with the in direct productivity and £20bn (PV) in
idea that better connectivity can be achieved via wider economic benefits
I
hub airports. In addition, well over 50% of the
The wider economic values are based on the
benefits would accrue to UK regions other than
lowest findings of all recent work on Wider
London (3.4.3).
Economic Benefits of airports - there could
be significant upsides
I
LONGER-TERM WIDER IMPACT TO THE ECONOMY
An expanded hub airport would generate
Wider economic benefits (WEBS) are measured
significant gains for the regions, especially
using the methodology Colin Buchanan
those currently excluded from Heathrow due
developed for Crossrail and which was
to a lack of capacity
subsequently adopted by the DfT, and also using
work undertaken by others regarding the wider I The wider economic benefits, valued at
economic benefits of airports and the aviation £20bn PV over 60 years, are higher than
sector generally (4.1.1). WEBS seek to identify those found for major rail schemes such as
where current constraints on aviation might High Speed 1 (£3.8bn PV), and even greater
restrict productivity growth; reduce international than the £10bn PV claimed for high speed rail
competitiveness; and increase market to the North, and Crossrail’s £15bn PV
I
imperfections (4.1.2).
A key difference between investment in
In this section we have prepared what we believe airport expansion and in high speed rail is
are appropriate values for the wider economic that the cost of airport expansion and the
benefits that would arise from a third runway at risks associated with future revenue streams
Heathrow. These are entirely additional to the would be borne by the private sector,
value of the user benefits produced in Section 3. whereas rail infrastructure investments would
be funded by the taxpayer (5.1.1)
I Productivity: we have adopted a cautious
value at the bottom of the available It makes little difference in economic terms
published evidence. That produces values of where a UK hub airport would be located (as
lost GDP from not investing in a third long as it has good connectivity to London and
the regions) and can be delivered in a timely and
Heathrow runway of £600m per annum or
cost effective manner. The report has assessed
over £20 billion (PV) over 60 years (4.2.8)
the economic impacts of expanding Heathrow
I Employment: DfT figures suggest that by but there are other possibilities for having an
2030 there could be an additional 10,000 expanded hub airport in London:
I
direct jobs (4.3.3)
Creating a new, three-runway (or more)
I Removing market imperfections: benefits of airport east of London, in the Thames
£30m per annum (4.4.3) Estuary (or elsewhere)
I There are other important issues which have I Expanding Stansted or Gatwick from one
not been valued, including the UK’s failure to runway to three
I
attract air links to the rapidly expanding BRIC
Using high-speed rail to link the London
countries and the importance of international
airports (allowing a collective hub)
labour to the UK economy (4.5.6)
I Linking the north to London airports with
high speed rail (5.2.2)
CONCLUSION
This study has looked only at the economic In theory, creating a new hub airport for London
impacts of hub airport expansion. It has would deliver the same benefit of capacity
deliberately not looked at environmental impacts expansion as described for Heathrow, though it
and surface access. Within those particular terms would take significantly longer to deliver and
of reference, the study concludes that: cost many times more to build both the airport
7
EXECUTIVE SUMMARY
and the connecting infrastructure. The same is remove some duplication of services, freeing up
true for making Stansted or Gatwick the new key some capacity. But linking, for example at-
hub – the benefits would be the same, though capacity Heathrow and Gatwick would deliver
the cost more and the time longer, given that little in the way of additional capacity from
both of these airports have further to go (from efficiency gains.
one runway to three) and current connectivity
Heathrow is therefore uniquely able to deliver
infrastructure would need upgrading.
the economic benefits found in the report. For
High speed rail would provide a good every year that hub capacity expansion fails to
supplement to any airport capacity expansion happen, the trade off is an estimated £900m-
plan. But on its own, use of high speed rail would £1.1bn (direct productivity and wider benefits). If
do little to alleviate the current capacity expanding Stansted or Gatwick to be the lead
constraints at Heathrow, as eliminating current hub were to take ten years longer than
UK flights (except Belfast) would only free up expanding Heathrow, the cost of that delay is
around 6% of slots. High speed rail would estimated at £5.3bn-£6.4bn (PV) to UK plc. If
provide a complementary benefit for the UK constructing a new hub takes 20 years longer,
regions, but on its own does little to increase the trade-off in lost benefit to UK plc is £8.9 and
capacity. A high speed rail link between London £10.9bn (PV) (5.2.4).
airports would increase the ability to hub and
8
INTRODUCTION
SECTION 1:
I
Future Heathrow, investigates the role of hub
Interviews with air industry professionals,
airports in economic growth, both generally and
airlines and organisations such as NATS
more specifically within the UK.
(National Air Traffic Services)
I
1.1.2 While expanding airport capacity in the UK
Case study interviews with regionally-based
has been planned, in particular, the Government
businesses
announced its support for a third runway at
Heathrow on January 15, 2009, the economic I Development of capacity expansion impact
impact of such an expansion has remained model
I
unclear. This report is to help fill this knowledge
Evaluation of wider impacts
gap, adding a fuller understanding of economic
impacts of hub airports to the context for future 1.2.3 The analysis only quantifies the business
planning. benefits and excludes leisure and tourism impacts.
1.1.3 In the remainder of this section, the basic
methodology and background core economic 1.3 CORE ECONOMIC CONCEPTS
concepts are set out, explaining the evidence Connectivity matters to economic development
relating connectivity to economic development 1.3.1 In this study, connectivity generally means
and more specifically the role of air connectivity transport connectivity, the ability to reach a wide
and ‘ub airports in economic growth. It then range of places in a short amount of time. High
explores the direct and indirect economic quality transport infrastructure is a prerequisite
impacts of hub airports to the UK in relation to for sustained economic growth and for
business users, through the way in which airline maintaining competitiveness in a developed
passengers benefit, and the consequential economy. International competitiveness is driven
effects of those passenger benefits. It does not by productivity growth which is underpinned by
address environmental impacts, surface trade, foreign investment and innovative activity,
transport or planning considerations, nor does it all of which are facilitated by connectivity. The
address the local economic impact of changes in most innovative and productive firms tend to be
airport activities nor the effect on airline those that are competing at a global level.
economics.
1.3.2 There has long been recognition of the link
1.1.4 The following sections assess: between connectivity and economic growth. The
I
growth of the world’s major cities throughout
The state/role of hub airports in the UK, with
history is clearly related to their position on the
discussion of current constraints
world’s transport networks. Historically it was
I The impacts of not improving hub capacity their position on overland trade routes, by
navigable rivers, or in sheltered bays. More
I Economic impacts of hub expansion recently it has been the impact of canals (New
I Overall conclusions York) or growth of suburban railways (London),
while the recent growth of cities such as Dubai
are linked to their place on the world’s aviation
1.2 METHODOLOGY
network.
1.2.1 This research centred on understanding the
transport and wider economic impacts of hub 1.3.3 The economist Alfred Marshall in the 1890s
airports, draws on our methodology devised for set out that firms face three key transport costs:
calculating the wider economic impacts of moving goods, people and ideas and that firms
Crossrail, in line with DfT (Department for will locate where they can minimise these costs.
Transport) guidance. This concept of transport costs takes into
account not just the cost of travel but also the
1.2.2 The process included the following:
time taken, which is also influenced by
1 Marshall, A (1890) The
I Background literature review uncertainty of that time. Good connectivity
Principles of Economics. therefore depends on cost, time and reliability.
London: Macmillan.
9
INTRODUCTION
SECTION 1:
1.3.4 Through the decades of further detailed available. But this has not meant the end of face-
international research since, this concept largely to-face business meetings; rather, common
remains. Firms ‘cluster’ and ‘agglomerate’ in business practice still relies heavily on meeting in
close proximity to each other because they gain person and agreeing deals with a handshake to
core efficiencies through the ease of inspire trust and lay the foundations for good
connectivity: business relationships. We know that new ICT
I
has added different layers to the means of
Ease of recruiting skilled workers in larger,
communicating with business colleagues, but
shared labour markets
these technologies have not replaced their
I Knowledge-sharing through formal and predecessors. We teleconference with and email
informal communication our colleagues and contacts, but we also still
I
telephone and meet with them.
Access to more competing suppliers
I
1.3.10 Research confirms these observations.
Access to more potential customers Studies show that many of the business contacts
1.3.5 Places that facilitate connectivity, and we email and telephone are within close physical
implicitly, the above-listed efficiencies, are proximity and that we tend to maintain
2 The Eddington Transport attractive to businesses. Connectivity creates electronic communication with people that we
Study: Sir Rod Eddington efficiencies that make firms more productive, also meet or have met in person.4 We need initial
was jointly commissioned by in-person meetings to foster business
the Chancellor of the
which in turn attracts more high-flying
Exchequer and the Secretary international businesses that have their choice of relationships, though we may continue the
of State for Transport to locations and starts a virtuous cycle of economic relationships with phone calls or emails. These
examine the long-term links
growth. different layers of communication help build
between transport and the
UK's economic productivity, trust, which is a key element in the informal
growth and stability, within 1.3.6 The fact that international businesses are knowledge-sharing that leads to innovation.
the context of the willing to pay a large premium on rent and
Government's broader 1.3.11 Other studies explain that different modes
commitment to sustainable
salaries in Central London, Manhattan, Tokyo and
development. The Study was Paris is testimony of the impact that location has are used for different types of knowledge-
announced in Budget 2005 on business success. Well-connected locations sharing across firms. While knowledge that can
and reported on 1 December
are hugely important to businesses. be reduced to straightforward data can be
2006 to accompany the
2006 Pre-Budget Report. communicated through virtual communications,
See: 1.3.7 In particular, the knowledge-sharing face-to-face contact is still crucial for
http://www.dft.gov.uk/about/ element of connectivity is increasingly communicating complex, tacit knowledge, which
strategy/transportstrategy/ed
dingtonstudy/
important, as innovation becomes a much has also been called ‘sticky’ knowledge.5,6
3Transport and International sought-after input to economic growth.
Trade, Conclusions of Round Innovation is linked to networking and 1.3.12 Even in our ever increasingly high-tech
Table 131, European knowledge-sharing and connectivity is a key world, physical connectivity and face-to-face
Conference of Ministers of
facilitator of this process. meetings have always played a key role in
Transport, 2005
4Imagawa 1996 in Peri 1998 business relationships and knowledge-sharing.
1.3.8 In the UK specifically, the Eddington Study2 There is every expectation that this will continue.
Peri, G. (1998) Human Capital
and Productivity in US Cities. recognised the importance of connectivity in
Milan: Universita’ Bocconi economic growth. It clarified the evidence for
5Audretsch, 1998, p.21
Role of air connectivity in economic development
the historic link between investment in transport 1.3.13 Air travel has grown rapidly in recent years
Audretsch, D. (1998)
“Agglomeration and the
and economic growth and reported that the as ideas, people and goods travel the globe,
Location of Innovative general consensus of research into the returns facilitating the kind of international connectivity
Activity.” Oxford Review of from investment in transport infrastructure is a
Economic Policy. Oxford: and competition that breeds innovation and
Oxford UP, p. 29. 0.2% increase in GDP for a 1% increase in public economic growth. As countries’ economic
6Roberts, J. (2000). “From capital stock, in a developed country. Whilst the performances ebb and flow it is important for
know-how to show-how? European Council of Transport Ministers cite the UK’s economic performance that
Questioning the Role of
Information and
airport and port infrastructure as one of the connectivity is developed and maintained with
Communications critical success factors for economic growth.3 the world’s fast growing economies. So in recent
Technologies in Knowledge
Transfer.” Technology decades, links to South East Asia and the fast
Analysis & Strategic Person to person contact still matters growing economies of Brazil, Russia, India and
Management, 1465-3990, 1.3.9 Information and communications China (BRIC) have become increasingly
Volume 12, Issue 4, 2000,
technologies (ICT) have expanded greatly in important.
Pages 429 – 443
recent years. Inexpensive telephone, email and
video-conferencing technology are widely
10
INTRODUCTION
SECTION 1:
“I know that for firms in Shanghai, for example, the speed of business means that people fly over to the
UK for just a day of meetings and then return. If the flights to London were not direct, I am not sure
people could do that and that would make London less attractive.”
Advisor to Chinese investors in the UK
1.3.14 Connectivity generates wider economic offer that level of service especially from the UK’s
benefits for businesses, both through the efficiency regions. In addition many passengers, especially
of direct linkages and also by providing an business users, also want high levels of frequency. A
environment that benefits businesses. In an weekly or daily point-to-point service is not going to
international business world, air transport provides be attractive to them. Airlines gave examples of
access to an international labour force, as well as where they had introduced a European point-to-
customers, suppliers and knowledge-sharing around point service in competition with services that
the world. These catalytic and ‘spillover’ effects, required an interchange, but direct services are not
increase the efficiency and productivity of UK necessarily better if they are infrequent – especially
businesses, as well as attracting inward investment for business travellers.
and high profile businesses to choose to locate in
1.4.2 As the traffic is not there to support direct
the UK over comparator areas.
point-to-point services between every point, traffic
1.3.15 Major national inward investment agencies interchanges through a few hubs.8 Passengers who
always promote their international connectivity, have access to a hub therefore benefit from a wider
particularly air connectivity, as a means to attract range of services and frequencies.
foreign direct investment. It is widely recognised
1.4.3 A typical hub airport operates on a wave
that air connectivity plays a crucial role in recruiting
principal. A wave of incoming flights will arrive
foreign business.
within a 60-120 minute time frame connecting with
1.3.16 Furthermore, the availability of air freight a wave of out going flights 60 minutes later. This
services further facilitates trade by enabling hubbing coordination allows for the maximum
businesses to operate in a more flexible and time- combinations of flight pairs to be offered, giving
sensitive scale, benefiting from services such as passengers a wider choice of destinations. Hubbing
'just-in-time' delivery. offers greater frequency (as well as destinations) for
connecting passengers (for example, there are three
1.3.17 Global connectivity is particularly important
direct flights from Edinburgh to New York a day, but
for those sectors characterised by internationalised,
by connecting at a hub airport, there are a further
high-value products and services, dependent on
dozen flights a day). And for passengers local to a
mobile workforces and face-to-face relations. These
hub airport, the transfer passengers supplement
include high-tech sectors, pharmaceuticals and
local demand, allowing the hub to offer a wider
financial and business services.
range and frequency of direct services to and from
1.3.18 Air connectivity increases with the number of the hub.
destinations served and the frequency of flights
1.4.4 For example, at a simplistic level, transfer
along these routes. This in turn will make a location
passengers at Heathrow lead to around a third more
more attractive to foreign investment and increase
flights operated (the proportion of transfer
the potential for business efficiency and ultimately
passengers) giving increased accessibility to
generates a virtuous cycle of connectivity and
passengers flying from the UK. Therefore, UK
economic growth.
passengers have a wider range of destinations and
7 Airports Council frequencies at Heathrow than if it were serving local
International 1.4 ‘HUB’ AIRPORTS demand alone. Table 1.1, which shows those
8 In this report we compare
1.4.1 There has been a long debate about the scheduled long haul routes with the highest number
figures for key hubs in
Europe, which are benefits of point-to-point versus “hub and spoke” of transfer passengers, helps to illustrate this point.
determined to be: Frankfurt networks in the aviation sector. Everyone would Based on average aircraft size and load factors at
Main, Amsterdam Schiphol,
prefer to be able to fly direct from their point of Heathrow it is possible to calculate what proportion
Paris Charles de Gaulle,
Madrid Barajas, and London origin to their final destination. However, as there are of an aircraft could be filled on a daily basis just with
Heathrow. Hereafter over 800 airports in the world handling more than point-to-point passengers. Without transferring
reference to the city alone
refers to these airports.
100,000 passengers each per year7 and thousands passengers, a daily direct service would not be
of smaller ones, it is never going to be possible to possible to seven of the destinations listed (Beirut,
11
INTRODUCTION
SECTION 1:
Table 1.1: Scheduled long haul routes with highest proportion of connecting passengers at Heathrow 2005
Connecting
Destination Total Average daily
Domestic International Total passengers plane supported
‘000 by point-to-point
demand only
Tehran, Phoenix, Ottawa, Mexico City, Accra and 1.4.7 An additional flight offered at such an
Baltimore), while direct services would be airport therefore principally only benefits the
significantly reduced on the other three routes catchment area of that airport. Whilst an
(Nairobi, Montreal and Calgary). additional flight offered at a hub airport provides
benefits not only to its local catchment area but
1.4.5 Much of the benefit of hub airports is
also to those areas that have connections to the
therefore reliant on a high volume of transfer
hub airport.
passengers, as they make direct routes to many
destinations sustainable and this is true across all 1.4.8 Therefore, by adding flight capacity at a
of the major international hubs. In the case of hub, the connectivity impact is magnified
the UK for example, 35% of London Heathrow’s compared to adding point-to-point capacity.
passengers are transferring to other destinations, Hub airports offer more destinations and greater
while in the rest of Europe, 53% of Frankfurt’s frequencies, than would otherwise be offered if
and 45% of Amsterdam’s passengers are making that airport were only meeting local demand.
onward connections (BAA). Because of Transferring passengers make these higher
Heathrow’s transferring passengers, UK residents frequencies and increased destinations happen.
and businesses have access to more direct And this type of service, particularly the high
destinations and at higher frequencies. frequencies, is attractive to businesses.
1.4.6 Some airports offer services aimed 1.4.9 Despite the rapid growth in point-to-point
principally at the needs of their local catchment services from UK regional airports they will never
area. With few transfer passengers the range of be able to offer the range of destinations that
destinations and frequencies offered is limited can be offered from a major hub airport. Hence
to that which can be supported by local for a regional airport to have frequent access to
demand. a major and growing hub is of vital importance
to UK regional economic performance.
“Good air links are vital to all of our offices across the UK – none of them are more than 30 minutes from
9 Long-haul destinations – a major airport.”
35% for all destinations FTSE 100 credit and consumer services company, employing 15,000 people worldwide
12
SECTION 2:
HUB AIRPORTS IN THE UK
2.1 HEATHROW IS THE UK’S PASSENGER HUB (Table 2.1) with a third of its passengers being
2.1.1 In terms of international access, the UK has transfers and of those a quarter connecting from
traditionally benefited from excellent aviation other UK origins or destinations. No other UK
links with the rest of the world. London’s five airport comes close in absolute numbers or
airports between them serve some 400 percentage of transfer passengers.
destinations, more than any other European city
2.1.2 Heathrow also handles more passengers
can achieve. The rest of the UK has a network of
annually than any other airport in Europe, just
regional airports providing a wide range of
under 70 million (Figure 2.1) and nearly double
services to destinations principally in Europe.
the number of passengers as the next most
However, Heathrow is the only major hub airport,
heavily used UK airport, London Gatwick.
13
SECTION 2:
HUB AIRPORTS IN THE UK
2.1.3 The nature of the destinations it serves is Table 2.2: Passenger numbers by destination by
very different from other UK airports and it airport
competes against other major European hubs Total Proportion of
which have similar characteristics in terms of non-domestic
destinations served. Ignoring national markets, passengers
which vary in size due to the different country’s travelling
characteristics, Table 2.2 ranks the main EU outside the EU
airports in terms of the proportion of non- London Heathrow 67,852 61%
domestic passengers carried who are travelling Frankfurt/Main 53,854 57%
outside the EU (broadly similar to ‘long-haul’
Paris/Charles
service). Over 60% of Heathrow’s international
De Gaulle 59,550 53%
passengers are travelling outside the EU, which
is marginally higher than Frankfurt, 8 percentage Paris/Orly 26,416 49%
points higher than Paris and 19 percentage Amsterdam/
points higher than Amsterdam. This compares Schiphol 47,757 42%
with London Stansted, which is principally a Milano/Malpensa 23,632 42%
point-to-point airport and where only 8% of
London Gatwick 35,166 40%
passengers are travelling outside the EU. London
Gatwick has strong levels of passengers Madrid/Barajas 51,208 39%
travelling outside the EU (40%), but this is Munchen 33,813 37%
dominated by leisure routes.
Roma/Fiumicino 32,404 34%
2.1.4 Heathrow’s network of long-haul routes are Barcelona 32,743 19%
supported by transfer passengers as shown in London Stansted 23,759 8%
Table 2.3 with 38% of its passengers transferring.
Source: Air passenger transport in Europe in 2007,
2.1.5 Heathrow’s high proportion of transfer Eurostat, 2009
passengers continue to bring to London and the
UK a wider range of direct destinations and
higher frequencies than London would otherwise
have, as indicated in Table 1.1. Some destinations
are only able to be served because of the
additional demand from transferring passengers;
others would have significantly decreased
frequency without transfer passengers.
Table 2.3: Traffic connecting onto scheduled long-haul flights at Heathrow 2005
“Whilst big airports like Manchester are important for the north, if we’re talking a
world hub, then Heathrow is the UK’s only option.”
Northern Way, partnership for the three northern Regional Development Agencies
(Yorkshire Forward, Northwest Regional Development Agency and One North East)
14
SECTION 2:
HUB AIRPORTS IN THE UK
2.2 HEATHROW FACES INCREASING 2.2.3 As the map overleaf shows there are a
COMPETITION large number of destinations in key world
2.2.1 Over the last ten years, Heathrow has faced markets that are not served from Heathrow.
increasing competition from expanding While some are served from other UK airports
European hub airports and its role in providing the lack of easy interchange to some of them
hub access for the UK’s regions has fallen makes it more difficult for UK regions to access
dramatically. many of these locations.
250
200
150
100
50
0
Madrid/ London/ Amsterdam/ London/ Paris/Charles Frankfurt
Barajas Heathrow Schiphol Gatwick De Gaule (Main)
Source: BAA
15
SECTION 2:
HUB AIRPORTS IN THE UK
Source: BAA
16
Countries not served by LHR
17
SECTION 2:
HUB AIRPORTS IN THE UK
140
120
100
80
60
40
20
0
Paris/Charles Amsterdam/ Madrid/ Frankfurt London/
De Gaule Schiphol Barajas (Main) Heathrow
Source: CB calculations using EU Energy and Transport in Figures, European Commission, 2009
“Heathrow is losing its status as major hub because the regions are being forced to become reliant on Amsterdam.”
Northern Way, partnership for the three northern Regional Development Agencies (Yorkshire Forward, Northwest Regional
Development Agency and One North East)
2.2.6 As demand for services grows, a Table 2.4: Number of runways at leading European
airports
constrained airport is unable to add new
destinations or higher frequencies on existing Airport Number Of Runways
routes without dropping other services. This is Amsterdam / Schiphol 5 (though not all used
what has occurred at Heathrow. New simultaneously)
destinations have been added at the expense of
Paris / Charles De Gaulle 4
mainly domestic and short-haul destinations. To
be attractive for business travellers, services on Madrid / Barajas 4
these latter routes need to be frequent. If Frankfurt (Main) 3 (4 by 2012)
frequencies are reduced, a vicious circle arises of London / Heathrow 2
lower frequencies, resulting in a less attractive
service to users, precipitating further service
reductions, until the route is dropped altogether. Heathrow are limited, landing slots are coveted
Without these feeder routes marginal long-haul and expensive and airlines that would prefer to
services are unable to be supported. So the operate at Heathrow are forced to serve other
airport provides highly frequent services on a airports, which are not always in the UK. What
smaller number of heavily trafficked routes. has developed is a system in London of five
airports, serving different purposes, but only
2.2.7 Heathrow is currently operating at 99% of
Heathrow offering a substantial number of
permitted runway capacity. Operations were
intercontinental flights and serving as a large-
improved in 2008 with the opening of Terminal
scale hub.
5, but capacity remains constrained by the two-
runway system. Heathrow’s European 2.2.9 Operating at 99% of capacity has
competitors all have three or more runways immediate and longer-term impacts:
I
(Table 2.4) and are typically running at 70-75%
In the immediate-term, London has fewer
of capacity.
hub benefits than it would if it could
2.2.8 Because of this constraint, services at accommodate all the flights that want to use
18
SECTION 2:
HUB AIRPORTS IN THE UK
Heathrow and if it could more readily which is two minutes longer than the average
accommodate better hubbing ‘waves’ of departure at Amsterdam and Paris and about
landing and take-off to improve connections. four minutes longer than at Frankfurt and
It also means that Heathrow’s flights have Madrid. On average, an arriving flight at
increased delays and reduced reliability Heathrow can expect nearly 18 minutes of delay,
compared to other hubs not operating at which is about 4-8 minutes more than
99% of capacity. When operating at full competitors. Research shows that there is a
capacity there is no available slack and any relationship between the extent of airport
perturbations in service are difficult to capacity being utilised and delay. So as
recover from and can have knock-on effects competing airports have provided new capacity
for the whole day; performance has improved relative to Heathrow.
I In the longer-term, there can be little 2.2.11 All this means that the UK’s main hub
increase in connectivity at Heathrow. Any offers a slower, less convenient hub service than
new destinations or increased frequencies competitors. UK residents and businesses suffer
come at the expense of another destination the cost and inconvenience of delays, as
already being served. This is already seen Heathrow becomes a less competitive hub.
with the loss of domestic services. Heathrow
2.2.12 The longer-term impact of a relative slip
can generally trade-off connectivity, rather
in connectivity is also beginning to evidence
than build on it, while competitors continue
itself. Figure 2.6 shows how passenger growth at
to build their connectivity.
Heathrow has trailed competitors in each year
2.2.10 The difficulties with immediate-term since 2004. Heathrow is stagnating at handling
delays at Heathrow are already clear. Figure 2.4 just under 70 million passengers per year;
and Figure 2.5 show average delay on departure competing airports are scheduled to surpass
and arrival at Heathrow compared to competing Heathrow’s passenger numbers, with Frankfurt
airports. For departure, the average flight at predicted to handle 80 million passengers
Heathrow experiences nearly 17 minutes of delay, annually by 2015.11
18
London / Heathrow
16
Amsterdam/Schiphol
Paris/Charles De Gaulle
14 Madrid / Barajas
Frankfurt (Main)
12
Minutes
10
2
11 http://www.airport-
technology.com/projects/fran
kfurt/frankfurt7.html, 0
accessed June 2009. 2005 2006 2007 2008
Source: Delays to Air Transport in Europe, Annual Digest 2008, Eurocontrol
19
SECTION 2:
HUB AIRPORTS IN THE UK
20
SECTION 2:
HUB AIRPORTS IN THE UK
Figure 2.7: Average air transport movements per airline carrier (excl hub carrier)
Source: CB calculations using EU Energy and Transport in Figures, European Commission, 2009
21
SECTION 2:
HUB AIRPORTS IN THE UK
Table 2.5: Proportion of passengers interchanging 2.2.18 This shift in regional passengers
on to long-haul flights in the UK, by origin airport, transferring at competing European hubs has
1996 and 2005 resulted in more flights from the regions to these
1996 2005 hubs. But as shown in Figure 2.8 those airports
that retain flights to Heathrow still have more
Manchester 73% 54%
flights to this hub than to competing European
Glasgow 79% 75% hubs.
Edinburgh 83% 70%
2.2.19 A high proportion of passengers from UK
Birmingham 0% 4% regional airports to the key European hubs,
Other UK regions 74% 65% including Heathrow, are transferring to other
Regional total 72% 60% flights. Nearly 70% of Manchester to Heathrow
passengers, for example, are transferring to
Source: CAA
Aberdeen
Glasgow Edinburgh
Newcastle
Belfast
Leeds
Liverpool Manchester
Nottingham
Birmingham
Cardiff
Bristol Southampton
Number of departures
per week
LHR
Anes
FRA
MAD
CDQ
Source: CB
22
SECTION 2:
HUB AIRPORTS IN THE UK
Source: CAA
other flights at Heathrow while the same demonstrate the possible connection times for
proportion travelling from Newcastle to Newcastle, Liverpool, Leeds and Teesside for
Amsterdam are also transferring (Figure 2.9). different regions of the world as would be
provided by a travel agent or on-line search. As
2.2.20 However, generally relatively high
these tend to exclude low cost airlines
frequency flights to Heathrow have been
connections appear more limited than they may
replaced by a similar number of flights to two-
in reality be, but it provides a good indication of
three continental hubs. Therefore, overall
connectivity as presented to overseas travellers.
frequency declines. Table 2.6 through Table 2.10
Total number of
connecting flights 22 14 7 10
Number of Connecting
Flights (1 connection) 12 1 2 1
Number of Connecting
Flights (2+ connection) 10 13 5 9
Dominant hub London Amsterdam London Amsterdam
Heathrow Heathrow/London
Gatwick
Journey Times
Shortest Travel Time (hours) 7:20 7:45 11:40 11:50 12:05
Average Travel Time (hours) 7:30 15:16 17:40 15:14 15:530
Difference between
Heathrow and regional
airport averages 7:46 10:11 7.:44 8:23
Source: CB based on Flight.co.uk
23
SECTION 2:
HUB AIRPORTS IN THE UK
2.2.21 In the case of flights from the Middle East flight time to Heathrow or there are only 1-2
there are few instances of just being able to flights a day offering more reasonable total
interchange once to reach those airports not journey times. In the case of access to Leeds
directly served by Heathrow. Average journey passengers have to interchange between
times are 7-10 hours longer than the average Gatwick and Heathrow airports.
“We rely on air travel for business meetings and conferences on almost a daily basis. We need flights to
be frequent.”
Martyn Pellew, Group Director, PD Teesport, based in Tees Valley
24
SECTION 2:
HUB AIRPORTS IN THE UK
2.2.22 For Japan, again there are very limited levels of UK transfer passengers support far
connections requiring just one change and very higher frequencies of services from competing
long average journey times compared to hubs than would otherwise have been the case.
travelling to Heathrow.
2.2.24 South America is not particularly well
2.2.23 As European hubs have improved their served from Heathrow but UK regional airports
flights to North America especially through do not have good links to Madrid or Lisbon
Amsterdam, connections to most regional which are the main European hubs serving the
airports are comparable with transferring at region. So there are few connections requiring
Heathrow. This illustrates the fact that large just one change.
25
SECTION 2:
HUB AIRPORTS IN THE UK
2.2.25 Flights to South Africa tend to operate better by Heathrow than the major European
overnight and so are not spread out over the day competing hubs. Even with India a lack of capacity
making regional connections more difficult but again has resulted in Air India12 developing its European
overall connections to Newcastle are better than hub at Frankfurt and Jet Airways13 at Brussels (the
other regional airports later routing 700,000 passengers through the
airport to and from India) with both citing the
2.2.26 In summary, UK regions are at a major
inability to obtain slots at Heathrow either at all or at
disadvantage in terms of access from major world
the right times as the reason why they went
markets. This hampers the ability to attract inward
elsewhere. While Indian papers have reported
investment and regional economic growth.
overtures from the Dutch government to Indian
airlines to develop hub operations at Amsterdam.14
Less service to key world markets
2.2.27 With scarce capacity slots become difficult 2.2.29 As airlines develop their global alliances there
and expensive to obtain creating a major barrier to are pressures to concentrate services on key hubs.
entry. This prevents competition, innovation and The Delta/Northwest merger has seen Amsterdam
development of new routes by non-incumbent become their major European hub. There are also
airlines. questions about BA’s (British Airways) link up with
Iberia and whether this will mean services to Latin
2.2.28 The result is that the route network becomes
America will be concentrated on Madrid to the
ossified, meeting the needs of the travelling
detriment of Heathrow. Figures 2.10-12 show
community of 20 years ago and not today. It is
Heathrow’s relatively poor market shares in some of
notable that of the four BRIC economies only India
the world’s key market.
which has long historical links with the UK is served
A very high proportion of air freight travelling through Heathrow is not UK–related. As with passengers, freight is being
hubbed. This means reliability is just as important for freight as for passenger traffic as much of it is highly time-
sensitive. Some of the hub traffic is brought in by truck from continental Europe while most is flown in and out again.
This helps support long-haul services out of the UK that might not otherwise be sustainable without support of this
freight traffic.
In 2000, Heathrow was the second largest freight airport; it has now slipped to fourth.
26
SECTION 2:
HUB AIRPORTS IN THE UK
2.2.30 Figure 2.10 shows that Heathrow was the 2.2.31 To Brazil, Heathrow is only the fourth
lead airport serving Japan from Europe in 2002, largest player from Europe and its market share
but now has lost its market share to Paris. Japan is on a downward trend (Figure 2.11).
is a key investor into Europe and the UK was a
2.2.32 While to China, Heathrow has slipped
key destination of Japan’s investment.
from third to fourth and risks being overtaken by
Munich (Figure 2.12).
27
SECTION 2:
HUB AIRPORTS IN THE UK
I
European airport. However, Heathrow is
Higher frequency of service
operating at full capacity and is constrained by
its two runways, which has immediate-term and I Facilitate new entrants into the market
I
longer-term implications. So Heathrow’s role is
changing. Competing European hub airports Improve reliability of services
have overtaken Heathrow in terms of total I Enable airlines to consolidate operations at a
destinations, and Heathrow has lost market share single airport
to key markets, such as China. While UK regions
can access continental hubs, flights are often I Increased competition
split between two-three hubs, and this provides 2.3.3 In discussions with airlines there was a
less frequency to any one hub. Service to the UK desire both to add new destinations and to
regions has declined, meaning Heathrow has a improve frequencies. A number of airlines felt
role as an international hub, but is not as widely their present schedules were not frequent
accessible by those in the UK’s regions. enough to allow them to compete on key
business routes. At the same time airlines
Benefits of expansion wanted to add new routes to markets they felt
2.3.2 A constrained hub prevents airlines from were underserved. This included China, India,
expanding their services. Removing that Africa and Latin America. There was also a
constraint can deliver a whole series of benefits, desire to restore UK domestic flights to act as
such as the following: feeders to longer distance services.
“We would always choose Heathrow as a last resort because we’d have to go by rail or road to get there.
Instead by using Teesside we have access to Amsterdam which has great connections.”
Engineering company based near Teesside Airport / Andy Hatton, Managing Director of Global Anodes UK
Ltd
28
SECTION 2:
HUB AIRPORTS IN THE UK
2.3.4 There are already examples of airlines that 2.3.6 There are both short and long-term
wanted to develop services from Heathrow but impacts of the constraint. In the short-term,
at present are unable to do so. An expanded hub adding capacity delivers a better service at
airport would enable these new entrants to Heathrow, with more destinations, greater
provide new competing services. frequencies and fewer delays.
2.3.5 As previously noted Heathrow serves 2.3.7 In the longer-term, adding capacity makes
fewer destinations and has fewer airlines than the UK more competitive for investment,
European competing hubs. Increasing particularly in emerging markets that otherwise
competition has been shown to bring substantial Heathrow would not be able to serve and
benefits to passengers in terms of reduced productivity is enhanced more broadly by the
prices and higher quality service. enhanced connectivity and global competition.
“We use air travel on a weekly basis but we will always fly to Amsterdam or Frankfurt to catch
a connecting flight rather than travel down to Heathrow. It’s much quicker and we don’t risk
being delayed.”
NGF Europe, Japanese owned automotive company based in the North of England
29
ECONOMIC IMPACT
SECTION 3:
IMMEDIATE-TERM
I
have an impact on the reliability of flight
Scenario 2:
times and this has been included;
I
i) same assumption as Scenario 1 regarding
Frequency: Increasing capacity would enable
flights to and from domestic airports;
the frequency of flights to existing
destinations to be increased, thus improving ii) same assumption as Scenario 1 regarding
the convenience of the flight offer, which we increased frequency to existing international
15 Department for Transport estimate by a reduction in the deemed destinations that currently have a low
(2005), Transport, Wider average wait times for a flight; number of flights;
Economic Benefits and
Impacts on GDP,
I New international destinations: Increasing iii) introduce one flight a day in each direction
http://www.dft.gov.uk/pgr/ec
onomics/rdg/webia/webmet capacity would enable flights to new to 20 new international destinations;
hodology/sportwidereconomi destinations to be introduced, thus removing
cbenefi3137.pdf iv) any remaining additional capacity is allocated
the need to interchange at another airport
16 London Economics proportionally to the international
(2008), Imagine a world class
and therefore providing a time saving;
destinations with the most frequent existing
I
Heathrow, report
commissioned by London Regional connectivity: There would be a number of flights (greater than 4,000 a year)
First benefit to passengers travelling from other – because of the new international
17 Department for Transport destinations this increase in flights is lower
UK airports to international destinations via
(2007), Adding Capacity at than the equivalent for scenario 1.
Heathrow due to the impacts outlined above.
Heathrow Airport
30
ECONOMIC IMPACT
SECTION 3:
IMMEDIATE-TERM
I
over the first five years. The benefits over 60
Scenario 3:
years are then discounted and shown in the
- no increase in flights, instead use all of the tables below as a Present Value (PV),
capacity increase to focus on minimising expressed in current prices.18
delays and increasing reliability;
3.3.2 Table 3.2 shows the results for Scenario 1,
I Scenario 4: where the main focus is on improving regional
links and increasing the frequency of flights to
- similar to Scenario 1, but focus the increase
and from existing international destinations.
in frequency on flights to and from regional
airports and the busiest existing 3.3.3 These results suggest that the additional
international destinations; and capacity at Heathrow may be worth
I
approximately £8.6bn in business time savings
Scenario 5:
to UK resident travellers as a PV over 60 years.
- use all of the capacity increase to provide This is the equivalent of almost £400m a year
flights to new destinations. in undiscounted terms.
3.2.3 Passengers per flight are assumed to be 3.3.4 Table 3.3 shows the results for Scenario
constant, so any new flights have the same load 2, where as well as improving regional links and
factor as existing flights. A ramp-up of demand increasing the frequency of flights to and from
is applied such that the number of business existing international destinations, flights are
passengers increases over the first five years of introduced to a set of new international
the appraisal, remaining constant thereafter. destinations.
For the flights to new destinations, the number
3.3.5 The overall benefit for Scenario 2 is
of passengers per trip is assumed to be the
similar to that for Scenario 1, although it can be
same as the average passengers per trip for all
seen that the frequency benefit for Scenario 2
existing destinations.
is lower. Scenario 1 does not have any new
3.2.4 It is important to note that we are international destinations whereas Scenario 2
focusing on benefits to business trips, so has a benefit of over £1bn relating to this
impacts on passengers travelling for other impact. The implication is that the economic
purposes are excluded. In addition, foreign benefits of new destinations or increased
business trips are also excluded, so as to focus frequency are similar and should be left to the
18 PV (Present Value) is a on UK time saving impacts as recommended in market to determine.
standard method for
DfT appraisal guidance. So for transfer
expressing and comparing 3.3.6 A summary of the results for Scenarios 1-
the outcome of specific passengers, only those from the UK are
5 is provided in Table 3.4.
investment decisions. We included in the analysis. Journey purpose splits
calculate benefits year-on-
are sourced from CAA data. 3.3.7 Scenario 3, where there is no increase in
year for the duration of the
appraisal period and then the number of flights, shows a much lower
3.2.5 The total value of the benefit under each
express them as a single PV. benefit than any other scenario, though this is
The PV is a way of heading is then quantified by using
expressing a stream of costs
an extreme and highly unlikely scenario. This is
assumptions about the time saving for each
or benefits as a single value. because no benefits from increased frequency
It takes the benefit for each category (see Table 3.1 for more detail) and
can be included and there is a limit to which
year and discounts it to what valued using values of time from SERAS (the
that benefit would be worth delays can be reduced – it would never be
at today's prices. Discounting
South East and East of England Regional Air feasible that delays could be removed
allows for depreciation in the Services model). altogether.
value of money over time -
so for instance, a benefit of 3.2.6 Table 3.1 provides details on some of the
£100 this year is worth more
key assumptions that have been used.
than £100 in ten years' time.
The discount rate that has
been applied is in line with
government appraisal
guidance.
31
ECONOMIC IMPACT
SECTION 3:
IMMEDIATE-TERM
32
ECONOMIC IMPACT
SECTION 3:
IMMEDIATE-TERM
Benefit per trip for new 180 minutes CB assumption – effectively assumes
international destinations that there is a three hour journey time
saving for passengers in the London
area travelling to or from these
destinations directly to Heathrow,
compared with transferring at another
hub airport. The ‘rule of half’ is applied
because we conservatively assume that
all trips consist of passengers who were
previously making the journey via a
different route (rather than completely
new trip generation)
Connectivity benefit per 30 minutes CB assumption – represents the average
interlining passenger from interchange time saving for interlining
regional airports passengers and is therefore only applied
to the proportion of passengers that
interchange at Heathrow. Those
proportions are sourced from BAA
Value of time per hour, UK Business (Domestic): 36.88 Source: SERAS provides 1998 values
2009 prices UK Business (International): 59.91 which are then uplifted in line with the
Retail Price Index and suggested value
of time growth from the DfT’s ‘WebTAG’
appraisal guidance. WebTAG does not
provide base values of time for air
passengers hence SERAS is used.
UK business proportion of UK: 44.9% CAA 2008 data – a percentage of the
trips from Heathrow by EU: 21.7% ‘transfer’ proportion is added to the UK
destination region Rest of Europe: 22.9% business proportion to obtain the
Africa: 9.1% overall percentage
Middle East: 14.6%
India / Pakistan / Sri Lanka: 11.6%
Japan: 13.4%
Rest of Asia: 12.4%
Russia: 17.6%
Australia and New Zealand: 6.6%
North America: 12.8%
Central America and Caribbean: 7.6%
South America: 17.7%
Growth of trips Assume that the UK business CB assumption
proportion of trips starts at 5%
lower than the values given
above, reaching the values above
after five years and constant
thereafter
Discount rate 3.5% for first 30 years, 3.0% DfT WebTAG guidance – standard
thereafter values in transport appraisal
33
ECONOMIC IMPACT
SECTION 3:
IMMEDIATE-TERM
Table 3.2: Economic impact of additional capacity Table 3.3: Economic impact of additional capacity
at Heathrow – Scenario 1 at Heathrow – Scenario 2
Benefit (£m, 2009 Benefit (£m, 2009
prices, PV over prices, PV over
60 years) 60 years)
Delay 1,300 Delay 1,250
Reliability 900 Reliability 900
Frequency 5,600 Frequency 4,700
New international New international
destinations 0 destinations 1,300
Regional connectivity 850 Regional connectivity 850
Total 8,650 Total 9,000
3.3.8 The results of the other scenarios show a over 60 years, would be in the range of £8.6-
total benefit of between £8.6bn and £12.8bn. An £12.8bn. Not adding capacity at Heathrow would
additional test involves capping the frequency cost the economy between £300m-£500m per
benefit in Scenario 2 to 120 minutes instead of year in lost productivity, depending on how the
60 and this also results in a total benefit within capacity is used.
that range.
3.4.2 Those figures only relate to the benefit
3.3.9 It is also possible to estimate the associated with time savings – the wider
proportion of these benefits that are likely to economic benefits are considered in Section 4.
accrue to London compared with the other UK
3.4.3 The results suggest that in general a
regions. Our analysis suggests that for the two
substantial proportion of benefits derive from
main scenarios presented in Table 3.2 and Table
the potential increase in frequency to regional
3.3, approximately 42% of the benefits would
and international destinations. This fits well with
apply to London and 58% to the rest of the UK.
the idea that better connectivity can be
achieved via hub airports. In addition, well over
3.4 CONCLUSIONS 50% of the benefits would accrue to UK regions
3.4.1 The results of the scenarios that have been other than London, demonstrating the regional
assessed indicate that the economic impact of benefits that hub airports can bring about.
adding capacity at Heathrow, expressed as a PV
Table 3.4: Economic impact of additional capacity at Heathrow – sensitivity test results (£m, PV over 60 years)
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
– focus on – increase - focus on new
delays frequency destinations
focused on
regions / busy
destinations
Delay 1,300 1,250 2,450 1,300 1,150
Reliability 900 900 1,700 900 950
Frequency 5,600 4,700 0 6,200 0
New international
destinations 0 1,300 0 0 9,850
Regional connectivity 850 850 0 850 850
Total 8,650 9,000 4,150 9,250 12,800
34
TO THE ECONOMY
SECTION 4:
LONGER-TERM, WIDER IMPACT
I
international connectivity and business
restrict productivity growth;
productivity over the past decade or so. The
I reduce international competitiveness; and argument is essentially that constraints on
aviation growth generally and, more specifically
I increase market imperfections. in this study, constraints on the expansion of a
4.1.3 In looking at the WEBS of aviation we have hub airport, imply a broader loss of productivity
had to take a view on what to include and what to the UK economy than can be valued through
to exclude. Our rationale for these decisions is changes in direct business travel costs.
set out below: 4.2.2 There remain considerable uncertainties
Business Productivity – this is the key element and previous academic studies find elasticities of
of WEBS. Certain studies separate out productivity to improved international
impacts on particular characteristics such as connectivity ranging from 0.007 to 0.13.
inward investment and economies of scale, 4.2.3 The 2007 study draws conclusions from
but a measure of productivity clearly cross-sectional statistical analysis of air
includes all of those impacts connectivity and labour productivity. In
35
TO THE ECONOMY
SECTION 4:
LONGER-TERM, WIDER IMPACT
undertaking that analysis it has to try and allow only increased by the increase in flights as a
for all the other differences between countries proportion of all London flights
I
which also affect labour productivity so that the
Regional based trips generally need to
impact of changes in connectivity can be
change (few point-to-point destinations) and
identified. That is not at all easy.
the more regional locations are excluded
4.2.4 The three earlier studies are all derived from Heathrow the more difficult that
from models of the world economy. The data becomes
I
that they use is synthetic (i.e. modelled) rather
An expanded hub airport would enable
than real, but, at least in theory, they are better
regional air services to be at least restored to
able to isolate the impacts of changes in
previous range and frequencies and probably
connectivity.
enhanced
I
4.2.5 What is striking, however, is the scale of
Hence the change in connectivity would be
the difference between the results. The 2005
much greater for the regions
study suggests an elasticity of GDP to
connectivity of 0.19 compared to 0.007 in the 4.2.10 We therefore produced a separate
2007 study. The latter is only about 4% of the analysis, showing how the overall increase in
former. One reason why the cross-sectional output would be spread across the UK regions.
study may look low is that it applies the In doing that we prepared a domestic
elasticity of what is inherently a local change “connectivity index” within the UK, showing the
(increasing capacity at an airport) to the national change in connectivity to each region. The
economy. The GDP impact is likely to be overall GDP growth was then allocated between
unevenly spread and our analysis highlights the the regions.
different regional impacts.
4.2.11 Table 4.2 below shows the impact on long run
4.2.6 On the other hand the elasticities set out UK GDP and the share by region, expressed both on
in the earlier studies appear to lead to an annual and a PV basis over 60 years. There are
extraordinarily large returns from airport some UK regions which have been excluded from
investment. Our view is that they are our WEBS analysis given that they have good
unreasonably high. access to London by alternative transport modes
and are too close for an air operation to be viable or
4.2.7 For our purposes we have adopted the
realistic. For example, many areas in the East of
most cautious of the valuations described above,
England are accessible to and from London within a
the 0.007 elasticity from the 2007 IATA study. As
two hour train journey.
that approach describes an elasticity between a
change in international connectivity and national
GDP we have made that calculation first.
Table 4.2: Productivity impact on UK GDP
4.2.8 That suggests that a third runway at
Heathrow would add 7% to the total international GDP, £m a GDP (£m, 2009
connectivity of the UK. Applying the elasticity to year prices, PV
that change produces a total increase in annual (undis- over 60 years)
counted)
UK GDP of some £600m per annum.
London & South East 225 7,500
4.2.9 However we have also taken account of
North East 115 3,950
the fact that some 20% of the additional runway
capacity has been allocated in our analysis to North West 45 1,500
new or expanded services to/from the UK Yorkshire & The
regions and the relative impact on London and Humber 25 800
the South East is less than on the regions. That is South West 160 5,400
because:
Scotland 20 600
I London based trips already have access to all UK Off-Shore 5 250
the London airports and are largely
Total UK Impact 595 20,000
indifferent between them for point-to-point
trips. The connectivity of London is therefore NB Values in this table are rounded.
36
TO THE ECONOMY
SECTION 4:
LONGER-TERM, WIDER IMPACT
37
TO THE ECONOMY
SECTION 4:
LONGER-TERM, WIDER IMPACT
additional to the value of the user benefits the SE. The regions gain 60% of the total
produced in Section 3. WEBs
4.6.2 The value of the quantified wider benefits to I The employment impacts, based on DfT figures
UK plc of a third runway is £595m per year, and suggest that by 2030 there could be an
£20bn as a PV over 60 years. additional 10,000 direct jobs
4.6.3 In interpreting these results it is worth I There are other important issues which have
bearing in mind that: not been valued, including the UK’s failure to
I
attract air links to the rapidly expanding BRIC
There is uncertainty over the productivity
countries and the importance of international
elasticities; we have adopted a cautious value
labour to the UK economy
at the bottom of the available published
evidence I Without the third runway things will get worse.
I
Heathrow will continue its relative decline to
The impacts vary across the UK and tend to be
the detriment of the UK economy
higher to the UK regions than to London and
38
SECTION 5:
CONCLUSION
5.1 SUMMARY OF ECONOMIC IMPACTS I Expanding Stansted or Gatwick from one runway
5.1.1 This study has looked only at the economic to three
I
impacts of hub airport expansion. It has deliberately
Using high speed rail to link the London airports
not looked at many of the more controversial issues
(allowing them to function collectively as a hub)
of environmental impacts and surface access. Within
those particular terms of reference, the study I Linking the north to London airports with high
concludes that: speed rail
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