Why London Needs a New Hub Airport

7/29/2019 Why London Needs a New Hub Airport

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IoD Big Picture Quarter 3 2011


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FOREWORD BY BORIS JOHNSON,THE MAYOR OF LONDON

Even before I became Mayor of London, it was clear to me that

expanding Heathrow was not the solution to the capitals pressing

need for increased aviation capacity. A constrained site too closeto thousands of homes was never going to provide us with the

full-service, round-the clock, multiple-runway hub airport that so

many of our neighbours and competitors now boast. So I

welcomed the Governments decision to take the third runway at

Heathrow off the table.

But saying no to a bad idea does not excuse us from working

to come up with the right ideas. London and the country at

large depends on aviation for business success and demand for

air travel is set to grow. That is why I published a paper in Januarythis year calling for a new hub airport to serve London. It was

widely welcomed by businesses and has I think helped to move

the debate forward nationally.

The article below from Transport for London takes these

arguments further. It will inform the response I shall be making

shortly to the Governments consultation on the Scoping

Document for its proposed Sustainable Aviation Framework (to

which I urge all Institute of Directors members to respond,

however briefly, with their views on the importance of aviation to

the health of the economy). It develops the arguments put

forward in my January paper and provides solid evidence of how

we are in danger of losing out to our competitors, becoming

merely a local station on a branch line connected to one of the

major airports on the other side of the English Channel. We

cannot allow that to happen if we wish to see international

businesses continue to invest in London.

The case is urgent. I hope you find the argument persuasive.

Boris Johnson and Transport for London

present the business case for a new hub

airport in the capital.

Why Londonneeds a newhub airport

According to the

Governments latestaviation forecasts, Londons

airports will be full by 2030.

While several new

terminals have opened in

the last 20 years, the only

new runway in London

since 1970 has been the

short strip at London City.

Londons international

economy depends on

access to a comprehensive

global network of flights.

This in turn relies on a fully-

functioning hub airport.

Without it, crucial long-haul

business destinations may

be under-served or notserved at all.

Heathrow is operating at

98% of its available

capacity. This is jeopardising

its effectiveness as a hub

airport. A number of long-

haul routes have been lost

in recent years, and UK

domestic routes have

also suffered.

An alternative to

Heathrow must be sought

to ensure that the UK has

a fully-functioning hub

airport to maximise theeconomic benefits

associated with Londons

status as a global city.

The issue is urgent. If we

fail to respond, the UK

risks becoming merely a

local station on a branch

line connected to one of

the major competitor

airports in Europe.

SNAPSHOT

Why London needs a new hub airport


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LATEST AVIATION FORECASTS

In August the Government published its latest aviation forecasts.

Under its current policy of not increasing runway capacity in thesouth east of England, Londons airports will be full by 2030. Growth

in demand will not simply cease in London at this point. According to

its central forecast, the Government envisages that nationwide by

2050 tens of millions of people every year will simply be deterred

from flying, while 42 million are expected to travel from London and

the south east to less congested airports in other UK regions, such as

Manchester.

This should alert the Government to a looming and potentially

disastrous problem. Londons highly international and productiveeconomy is uniquely dependent on access to a comprehensive global

network of direct and frequent flights. This network can only be

supported if there is a well functioning hub airport. Without such a

hub, crucial long-haul business destinations may be underserved or

even not served at all. Yet London will need first-class global aviation

connections more in the coming decades than ever before. Moreover,

through excellent new links Londons global aviation network should

be able to offer other UK regions opportunities for developing much

stronger, more globally competitive economies themselves.

THE UKS ECONOMIC CHALLENGES

The economic challenges now facing the UK are perhaps more

formidable than at any other time since the 1940s. The financial crisis

and subsequent recession have revealed fundamental weaknesses which

demand radical action. The policies which the Government is pursuing

to tackle the fiscal deficit are a vital part of this. However, a sustained

and sustainable recovery is also going to need bold investment togenerate far more jobs and improved export performance.

It is essential to consider the international circumstances in

which the UK economy will be competing in the future. Over the

course of the next forty years or so, a much higher proportion of the

worlds population can be expected to be participating in the global

economy. This means that the UK will be competing in an

increasingly tough, fast-changing world both for resources and for

markets. One of the strengths on which the UK must build over the

coming years is Londons status as one of a small handful of trulyglobal cities. We also need to move from a position in which London

generates wealth to support other regions to one in which the UKs

regions participate more fully in the wealth creation opportunities

which London offers, including its global connections.

THE IMPORTANCE OFLONDONS AVIATION LINKS

London has become a global city for a number of geographical, historical

and cultural reasons but, above all, it has relied on first class global



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communications. In particular, in the decades after the Second World

War London built an international network of aviation links of

unparalleled quality which allowed it to act as a world hub through

which passengers from all corners of the globe were funnelled andconnected. This has provided huge benefits, from income and work in

the aviation sector itself (around one job per thousand annual

passengers at airports), its supply chain and the induced demand from

this, to competition and productivity benefits in the wider economy.

Above all however, the effect of aviation over time has been to

transform the character and nature of Londons economy, enabling it to

generate far more wealth than it otherwise would have been able to do.

For people and businesses based in London, direct flights were

available to more places and at greater frequencies than

competing cities could offer. Businesses which were heavily

dependent on aviation were consequently attracted to London

and became increasingly concentrated there, most notably in the

financial and business services sectors. This fed demand for

aviation and created a virtuous circle of both aviation usage and

economic linkages between the UK and the rest of the world, as

shown in the diagram below.

Over time, Londons economy has evolved to be increasingly

aviation intensive and this has benefited London and the UK

enormously. Business travel brings a whole range of economic

benefits, boosting productivity and profits for the firms involved.

For example, it enables collaboration within multi-national firms,

which in turn produces social network effects and improvements

in firm performance and productivity. It also helps attract capital

flows from overseas. It is estimated that foreign direct investmentcontributes more than 52 billion each year to Londons economy.


CHART 1

Virtuous circle between aviation links and the wider economy

Source: based on Mariya A. Ishutkina & R. John Hansman,Analysis of the interaction between air transportation and economic activity: a

worldwide perspective, MIT International Center for Air Transportation, March 2009.

Demand for passenger travel

and freight

Supply of air transport

infrastructure

Air transport flows

Additional enabled flows

London andthe UKs

economy

Worldwide

economy


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REASONS FOR FLYING ANDREGIONAL VARIATIONS

People do not generally fly for flyings sake, but rather as a means to an end. Airportdemand therefore arises from the demand generated by activities which rely on

aviation, both personal and business. These include holidays, visits to see friends and

relatives, study visits, conferences, company business in overseas offices, client

meetings, overseas employment, to receive healthcare and also for serving goods

markets and their supply chains although much cargo is price-sensitive, it is

regularly carried on passenger services, particularly where speed adds value.

There is regional variation in the nature of the demand for aviation, reflecting

the different economic role it plays in various regions. In London, a higher

proportion of the market travels for business purposes, a result of the peculiaraviation intensity of its economy. As Chart 2 shows, while the total volume of trips

handled at the London airports is about twice as high as the total handled at the

main regional airports, the volume of business trips is approximately three times as

high. There are also higher volumes of trips to visit friends and relatives (VFR) from

London airports because of the higher proportion of Londons population with

overseas family and social ties than in other regions. Just over a third of leisure trips

at the London airports are for this purpose, which compares to just over a quarter of

trips at the main regional airports.

Also, whereas outbound tourists dominate regional airport usage, there is more

balance between inbound and outbound tourists in London. While many tourists

visit a variety of UK regions, they typically see Heathrow and London as the gateway

to the UK (and to Europe in some cases). As Chart 3 illustrates, while the number of

passengers handled at the London airports is less than double the number handled at

the main regional airports, the London airports handle almost four times as many

inbound tourists as the main regional airports.

CHART 2

Totalannualpass

engers

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

VFRBusiness Other leisure

Share of business, VFR and other leisure trips at the London and main

regional airports

London Airports Regional Airports*

*13 of the UKs main regional airports

Source: CAA, Passenger Survey Report, 2007/8, 2008, 2009. (The regional airports sample represents approximately three-quarters of

total regional demand.)


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CURRENT AVIATION PROVISIONAND PERFORMANCE IN LONDON

Today, Londons five principal airports together accommodate60% of UK demand. Heathrow is not only the largest but is also

the UKs only hub airport, while Gatwick, Stansted, Luton and

London City airports focus on providing point-to-point services,

like every other UK airport. Heathrow therefore plays a special

role. Its hub status has a major influence on the services it offers.

Heathrow accommodates approximately 35% of all passengers

using UK airports to travel overseas and 70% of those travelling

outside Europe. Approximately a third of Heathrows passengers

transfers between flights, allowing a far broader range of long-haul


CHART 3

CHART 4

Totalannualpassengers

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

11% of passengers arriving at UK

regional airports are inbound tourists

Inbound tourists Other

London Airports Regional Airports*

*13 of the UKs main regional airports

Share of inbound tourists at London airports and the main regional airports

Source: CAA, Passenger Survey Report, 2007/08, 2008, 2009. (The regional airports sample represents approximately three-quarters oftotal regional demand.)

23% of passengers arriving atLondons airports are inbound tourists

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

Heathrow Gatwick Stansted Luton London City

Annual passengers at Londons five principal airports, by origin/destination

Domestic Rest of the worldEurope

Source: CAA,Annual UK Airport Statistics, 2010.


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destinations to be served directly, as well as at higher frequencies

than could otherwise be offered. This is reflected in the

distribution of destinations served, as shown in Chart 4.

The global reach of Heathrows direct services is very valuablefor London as a business location. Business travellers place a

premium on the flexibility of high frequency flights and the

convenience of direct ones. Although London probably generates

more international business passengers than any other city in the

world, the demand they generate alone could not justify the levels

of service upon which they depend. These services depend to some

extent on consolidated demand from leisure passengers, including

those originating elsewhere and transferring. For many flights,

long-haul in particular, the economics are such that passengers in

both economy and business seats are required, together with high-

value goods in the belly-hold. This is explained further in Box 1.

Whilst in the past Heathrows aviation offer has grown alongside

growth in passengers, in the past 15 years or so capacity

constraints have begun to bite and the development of services

has been unable to keep pace. While several new terminals have

opened at Londons airports in the last 20 years, the only new

runway since 1970 has been the very short strip at London City, as

shown in Chart 5.

As a result, Londons airports are becoming full. Heathrow inparticular is operating at 98% of its available capacity. This causes

peak-time delays and poor resilience at times of disruption. At

busy times, incoming aircraft spend between 30 and 40 minutes in

stacks circling London. In the last ten years, flight sector times

between Amsterdam and Heathrow have increased by 30 minutes

to 90 minutes to account for this. Pre-departure delays and taxi

times are also much higher than at other major European airports.

Not only do these problems detract from the quality of the

experience of using Heathrow, they also worsen theenvironmental impacts of Heathrows flights.

Furthermore, Heathrows capacity constraints are jeopardising


Why business needs could be under-served without a hub airport

BOX 1

Access to a network of direct long-haul destinations is important for some businesses and they tend to

cluster in the relatively small number of cities that can offer it. However, even a city like London could not

justify a network of frequent flights to a wide range of long-haul destinations on the basis of business

demand alone. In fact, airlines rely on the additional revenue provided by leisure passengers (and cargo) to

make viable the network of routes which suits international businesses, with adequate frequencies. The

importance of this is demonstrated by the fact that in 2010 there were 39 routes at Heathrow on which

more than 50% of passengers were transferring, and a further 92 routes on which more than 25% of

passengers were transferring.

This works because leisure passengers are more willing to fly indirectly than business passengers,

particularly since airlines price indirect flights more attractively. Leisure demand for long-haul destinations

can therefore be consolidated at hub airports like Heathrow. In economic terms this means that leisure

passengers are effectively generating positive externalities to other passengers, including business

passengers, which help correct the market failure associated with the high fixed costs of operating direct

long distance air services.


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its effectiveness as a hub airport. The development of new serviceshas generally come at the expense of others, as shown in Chart 6.

Aside from the loss of a number of thinner long-haul routes from

Heathrow1 in recent years, UK domestic routes in particular have

suffered. Whereas there were 22 routes between Heathrow and

other UK destinations in 1990, there are now six. Passengers

departing from UK regional airports do not, however, generally use

the other London airports to transfer to long-haul flights. Spare

capacity at Gatwick, Stansted and Luton, largely at inconvenient

and unattractive times of day, is being overlooked, while regional

passengers now routinely use overseas hubs such as Amsterdam

Schiphol, Paris Charles de Gaulle and Dubai to transfer to long-

haul flights not directly available from their home airport.


Historic growth in Londons aviation provision

CHART 5

Source: Mayor of London,A New Airport for London, January 2011.

Changes in destinations served by Heathrow, 2002-2011

CHART 6

Source: OAG, 2002 & 2011.

New destinations

Increase in service

to destination

Decrease in service

to destination

Destinations lost

1 Jakarta, Osaka, Caracas and Bogota have disappeared from Heathrows departure boards. Lima, Guangzhou, Manila and Panama City have never been

available. All are offered at Amsterdam Schiphol, Paris Charles de Gaulle, and Frankfurt.


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Not only does this diminish the feeder traffic available at

Heathrow, it also means there is less international connectivity

available to the UK regions, since frequencies to these alternative

hubs cannot generally be as good as to Heathrow. Meanwhile,

while the development of services at Heathrow has been

suppressed by its capacity constraints, services from these overseas

hub airports have grown. Heathrow has lost its pre-eminence.

THE UKS FUTURE AVIATION NEEDS

The wealth and opportunities that globalisation offers are rapidly

spreading to new regions around the world. National income has

been growing at unprecedented rates in many countries, including


Capabilities and capacities of the main European hub airports

TABLE 1

Heathrow

Amsterdam

Paris

Frankfurt

Madrid

Airport

2

6

4

38

4

Runways

876

110

114

83

98

Current

maximumcoordinatedflights per hour2

87

120

120 (2015)

126 (2015)

120

Planned future

maximumcoordinatedflights per

hour3

98.5%7

70%

73.5%

74.5%

n/k

Current runway

utilisation

4

192

277

257

291

191

Destinations

served, as ofJune 20115

-2.5

0

2.5

5

7.5

-5

0

5

10

15

1970 1980 1990 2000 2010

World GDP

Gross domestic

product

World RPKs

Revenue

passenger-

kilometres

GDPPercent change

RPKsPercent change

CHART 7

The relationship between GDP growth and aviation use

Source: Boeing, Current Market Outlook 2011-2030, 2011.

2 Data obtained from airport operator websites and European Commission, Impact assessment of revisions to Regulation 95/93. Final Report. March 2011.3

Ibid.4 Ibid., unless otherwise indicated.5 OAG data, June 2011. Destinations include charter flights and flights which make more than one stop.6 Source: Airport Coordination Limited, Heathrow Summer 2011 Start of Season schedule, 2011. (Comprises 45 departures, 42 arrivals.)7 Source: BAA, 2007.8 Frankfurt is due to open a fourth runway in October 2011.


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China and India. Historical evidence indicates that there is a very

strong link between growth in GDP per capita and aviation usage,

as shown in Chart 7.

In fact it appears that there is a particularly strong relationship

between the number of households with income in excess of

$20,000 and aviation usage. Emerging megacities are expected to be

the locus of a disproportionate volume of aviation as their future

income levels rise, taking increasing proportions of their

populations above this critical level. These cities will be heavily

concentrated in Asia and Latin America, as shown in Chart 8. In

contrast, the current distribution of flights available from Heathrow

is weighted heavily towards North America and Western Europe,

which account for nearly three-quarters of total weekly flights.

Heathrow no longer has enough spare capacity to respond to

market opportunities and, as a result, new direct services are often

established more quickly at competitor airports. This may have

wider economic consequences for the UK, particularly in the case

of important emerging economies such as China. In particular,

when there are very high opportunity costs associated with landing

slots, as is the case at Heathrow, there is little incentive for airlines

to take risks with new and untested routes. In the case of China,

European rivals have been better placed to establish new routes

and gain first mover advantage, as shown in Chart 9.

Londons relative backwardness in developing links tomainland China is also reflected in the comparison between the

number of weekly scheduled seats available from Heathrow to

mainland Chinese destinations and the numbers available from its

continental rivals, as shown in Table 2.

ENVIRONMENTAL LIMITSTO AVIATION GROWTH

The UK should continue to be at the forefront of efforts to make

aviation more sustainable but without shackling its economic

Megacities 2010-2025

CHART 8

Source: McKinsey Global Institute, Urban world: mapping the economic power of cities, 2011.

Total GDP from 2010

2010 2025

New by total GDP GDP growth


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potential. The Governments Committee on Climate Change9 has

demonstrated that there is still considerable aviation passenger

growth permissible within climate change targets, although it is

clear that unconstrained passenger growth cannot be

accommodated. Its recommendation to the Government is that

the UK is likely to be able to accommodate an additional 130

million passengers per year by 2050.10

Given the enormous wider economic benefits associated with

Londons hub airport and in particular the need for direct

international business connections to be maintained and

improved, there is a strong case for prioritising hub airport

development. Further, there would be less disbenefit associated


Non-stop passenger flights to mainland Chinese airports from major European

hub airports per week

CHART 9

Source: OAG flight schedules for the week commencing 20 June 2011.

Total scheduled seats per week to mainland Chinese airports from majorEuropean hub airports. Week commencing 20 June 2011

TABLE 2

Source: OAG flight schedules for the week commencing 20 June 2011.

8,915

LondonHeathrow

11,008

AmsterdamSchiphol

15,078

Paris Charlesde Gaulle

17,583

Frankfurt

1,250

MadridBarajas

Total seats per week

9 The Committee on Climate Change is an independent body established under the Climate Change Act to advise the Government on emissions targets, and to

report to Parliament on progress made in reducing greenhouse gas emissions.10 Meeting the UK aviation target options for reducing emissions to 2050, Committee on Climate Change, December 2009.


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with lower growth at airports where direct aviation links are not

as essential to the functioning of the economy and which are

dominated by outbound short-haul leisure flights.

Nevertheless, for many people airports generate a major noisenuisance and aircraft emissions can represent a significant health

hazard. More than 250,000 people are significantly affected by

noise at Heathrow11 and a quarter of the nitrogen oxide

monitoring sites at the airport exceeds the EU limit value, with

poor health impacts for some people living near the airport. From

a local environmental perspective, further capacity expansion at

Heathrow is considered unacceptable.

GROWING HEATHROWIS NOT THE ANSWER

Londons economy is crucially dependent on access to an effective

hub airport which can give it the range and frequencies of flights it

needs for business purposes. Heathrows performance in this

regard is already suffering because of its lack of spare runway

capacity and the crowded surface access networks which serve it.

Despite current efforts to improve its infrastructure, these issues

will remain and the fundamental environmental problems it poses

for large numbers of Londoners will remain largely unaddressed. As

the demands of a modern world hub airport increase, Heathrows

shortcomings will only become more pronounced. Furthermore,

even had it been given the go-ahead, the third runway project

would not provide the long-term solution which is needed. Even

with a third runway, Heathrow would likely be operating at close to

capacity again by 2030. Heathrows competitor hubs will continue

to expand and would regain their advantage before long.

Another solution which has been proposed in the past is forLondons airports to work together as a virtual hub. Unfortunately,

since they are on different sides of the city, this is not feasible. No

major world city possesses a virtual hub network. BA and BAA did

try in the 1990s to create a dual hub at Heathrow and Gatwick, but

this failed. Convenience and speed of transfer are vital attributes of

an effective hub airport. The worlds most efficient hub airports

boast minimum connecting times between arrival and departure of

around 30 minutes. This level of service would not be possible for

transfers between London airports, even if the challenge ofproviding a fast, reliable and secure means of transferring goods and

baggage between aircraft at different airports could be solved.

A NEW HUB AIRPORT FOR LONDON

It is clear that an alternative to Heathrow must be sought to

ensure that London and the UK have a fully functioning hub that

can accommodate the projected number of passengers permitted

within environmental limits. Such an airport would have to meet

the following requirements:


11 This compares to less than 5,000 affected to the same extent (57dB) at both Stansted and Gatwick.


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An efficient, resilient operation which allows rapid

recovery from major disruption;

Sufficient runway and terminal capacity to support an

extensive route network, including a renewed domestic

network between London and the UK regions, and the

ability to concentrate flights into waves of arrivals and

departures;

Sustainable, high quality surface access, including

connections to both London and the regions, maximising

use of public transport and high speed rail use in

particular;

A high quality experience which not only provides anappropriate gateway to the UK but is also able to create

a favourable impression on transferring passengers.

Such an airport should allow significantly more flights within the

permitted climate change ceiling since it would be much more

operationally efficient than Heathrow. By ensuring that London

continued to have enough direct flights to an expanding network

of globalised cities, it would maximise the enormous economic

benefits associated with Londons global city role. By having

excellent rail and air connections to the rest of the country it

could also be a true UK hub airport. It would spread the benefits

of Londons global links across the whole country and help people

and businesses across the UK forge new business links to build a

strong, competitive and inclusive British economy. The Mayor will

continue to work on building a new consensus about the need for

such an airport and will in due course be publishing further

reports which examine the feasibility of various options.



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