Heathrow gets another report from Frontier Economies – pushing dodgy figure of £14 billion loss in trade … if no massive UK hub
Heathrow has commissioned yet another report from Frontier Economics, making out that there is a huge loss – “up to £14 billion per year” – to the UK economy from not having a massive hub airport. Colin Matthew does admit that the headline figure,for purposes of publicity, of £14 billion “should be treated with caution”. ie. it is a somewhat random figure, and quite how it is arrived at is not explained. In a Frontier Economics report in September 2011 they said there might be a £14 billion loss of trade over 10 years, not per year. The analysis seems to seriously confuse chicken and egg. Do more flights to certain destinations generate more trade – or are more flights needed once there is already trade with that destination? This seems to be a very one-sided report, putting a flimsy case for self-serving ends, and deliberately misleading on the realities on air travel. In reality 70% or so of flghts from Heathrow are for leisure purposes – not businesses. More long haul flights for leisure are what airport expansion would promote. These lucrative routes are what Heathrow wants more of. More flights are profitable for airlines and airports, without doubt. But the benefit to the UK economy as a whole is very much less certain.
One hub or none
15th November 2012 (Heathrow Airport Ltd website)
New research from Frontier Economics shows the lack of capacity at Heathrow airport is already costing the UK up to £14bn a year in lost trade and this figure could rise to £26bn a year by 2030.
The figures form part of a new report “One hub or none“ [very glossy, 36 pages] published by Heathrow today which marks the airport’s first contribution to the aviation capacity debate since the establishment of the Government’s Airports Commission.
The report explains why a hub airport is different and uniquely valuable to the UK. It also sets out why two hubs or ideas for a split hub like ‘Heathwick’ won’t work. And it concludes that the UK’s connectivity needs can only be met by a single UK hub airport, which means either expanding Heathrow or replacing Heathrow with a new hub airport.
It shows beyond doubt that it is impossible for other non-hub airports such as Gatwick, Stansted or Birmingham to close the £14bn trade gap.
Heathrow operates at 99% capacity. There is no room to fit in new trade routes to the emerging economies which are important for future economic growth. That lack of capacity is affecting the UK’s competitive position. There are 1,532 more flights to the three largest cities in mainland China from Paris and Frankfurt than there are from Heathrow.
The UK’s connectivity gap with China has also widened in terms of destinations. UK businesses cannot fly directly to seven destinations in mainland China – Chengdu, Hangzhou, Wuhan, Xiamen, Nanjing, Shenyang or Qingdao – that are now served by other European hubs.
Daily, direct flights bring in twenty times as much trade as routes which are not direct or as frequent. Only a hub airport can provide these links. Hub airports use transfer passengers to pool demand from different countries to support direct and daily long haul routes that would not be viable using local demand alone. Point to point airports, which rely on local demand, cannot support these routes.
Heathrow welcomes the growth of point-to-point and regional airports. But the expansion of point-to-point airports is not going to solve the UK’s connectivity problem. As the UK’s only hub airport, Heathrow serves 75 destinations that are not supported by any other UK airport. Only a hub airport can provide the range and frequency of long-haul direct services that UK air passengers want.
Some people have put forward the idea of dual hubs (for example Stansted and Heathrow both operating as hubs independently of each other) or split hubs (for example Heathrow and Gatwick being joined via a high-speed rail line, dubbed ‘Heathwick’). Today’s report explains why neither of these options is viable.
Hubs rely on the ‘home carrier’ to support them. The UK only has one major network carrier, British Airways. A dual hub using Heathrow and Gatwick was tried by BA in the 90s. It didn’t work. BA has since taken every opportunity to consolidate its operations at Heathrow, where it can reap the synergies of single-hub operation and use the transfer traffic to support routes. Without a major network carrier at a new, second hub other airlines won’t locate there since they won’t have the home carrier’s short-haul network and transfer passengers to support their long haul operations.
A split hub will not work either. Hubs must have an efficient – and quick – way for passengers to transfer between flights. The best European hubs can transfer passengers between planes in 45 minutes. A link between Heathrow and Gatwick would mean passengers spending 100 minutes moving between planes. That is simply too long for a ‘Heathwick’ type solution to be competitive. And that is before looking at the additional complexities of how to transfer bags reliably or the cost of the link.
Colin Matthews, Heathrow’s Chief Executive, said:
“If anyone was still in doubt about the importance of aviation to the UK economy, today’s report should lay those doubts to rest. We’re already losing out on up to £14bn of trade a year – and that could almost double by 2030. The new work we are publishing today shows that only a single hub airport can meet the UK’s connectivity needs and the choice is therefore between adding capacity at Heathrow or closing Heathrow and replacing it with a new UK hub airport.”
In the Guardian’s report on this, Colin Matthews admitted:
..” .. “if you ask three economists, you get three different answers”, but said research Heathrow commissioned from Frontier Economics suggested the potential costs to the wider UK economy as well as aviation could total £14bn a year, although it warned the figures should be treated with caution. New Chinese destinations such as Chengdu could provide a third of that uplift.”
Heathrow must be expanded or replaced, airport chief announces http://www.guardian.co.uk/environment/2012/nov/15/heathrow-issues-hub-airport-decision-warning
The assessment of the £14 billion seems to be based on merely extrapolating some data into the future, without any explanation of why this is being done. The text below if from Page 6 of the Frontier Economics Nov 2012 bulletin:
HACAN briefing. Myths and Facts
By contrast, see the HACAN briefing on why a third runway at Heathrow is not needed.
Frontier Economics’ website – dated September 2011 – says:
Heathrow report shows UK risks being cut off from growth by poor trade links
Heathrow has today [?September 2011?] published a report by Frontier (Europe) as part of its response to the Government’s scoping document on UK aviation policy. The report, “Connecting for Growth”, identifies the importance and value of a hub airport to the UK. It finds that Heathrow is a successful hub airport but, because it is full, new routes cannot be established without squeezing out existing services. This restricts economic growth, and other UK airports are not filling this gap because they do not serve the substantial hub and spoke networks that are needed to make new direct long haul services viable.
More than half of world economic growth will be in Emerging Markets over the next ten years. Airlines operating from other European hub airports are able to establish routes to the fastest growing markets, while these links are not established, and cannot be established with the UK. This matters because it places UK businesses at a competitive disadvantage to French, German, Dutch, and Spanish firms. The report identifies that UK businesses trade 20 times as much with Emerging Market countries that have direct daily flights to the UK as they do with those countries that do not. This leads to a missed trading opportunity for UK firms which we predict totals at least £14bn over the next ten years.
|Connecting for growth.pdf – the Frontier Economics report Written in September 2011
In reality, Heathrow is about long haul leisure flights – promoting lots more of them
Around 30% of Heathrow’s flights are for business. The other 70% or so are for leisure – either visiting friends and family, or on holiday. See link.
If there is any uncertainty about whether Heathrow is an airport devoted to business travel and promoting UK exports, rather than promoting leisure trips to long haul destinations, look no further than the Heathrow Airport website. For example its page on New Destinations at http://www.heathrowairport.com/plan-and-book-your-trip/latest-destinations
Or its page on How to plan and book your trip at http://www.heathrowairport.com/plan-and-book-your-trip
For example, to take one at random, its guide to India at states:
Travel Guide – India
India henna tattoo © Meanest Indian
From the snow-capped Himalayas in the north to the sun-drenched coastal villages of the south, India unfolds like an ancient tapestry. At times threadbare and fading, the land stretches from desert dunes and scattered slums to the rich embroidery of ancient, jewelled palaces, and the majestic domes of forgotten empires.
Since the first civilisations rose on the banks of the Indus River almost 5,000 years ago, India has given birth to Buddhism and Hinduism, been touched by the Empire of Alexander the Great, seen the ancient empires of the Mauryas and Guptas rise and fall, and has traded with Pharaohs and Caesars.
An invasion by the Huns scattered its people until the sweeping hand of Islam saw new kingdoms rise, heralding the era of the Sultans. Defeat came again as the Mogul Emperors marched over the mountains and into the Punjab. The decline of the Mogul Empire gave way to the Marathas, who consolidated control of India just in time for the arrival of the British. The sun finally set on the British Empire as India reclaimed independence in 1947, heralding a new age of democracy.
India is a feast for the senses; where the air is heavy with the scent of jasmine and dancers trail frenetic melodies in colourful silk saris. Its cooks compose dishes from a palette of exotic spices that may leave a lingering taste of saffron or aniseed. In India’s cities, the hardship of slum-living competes with the cacophony of seemingly endless traffic and a myriad of other textures, colours and movements all jostling for your attention.
Does that really look like an encouragement for business flights? Rather than an enticement to holiday travel?
15 November 2012 (BBC)
Heathrow report: Lack of airport capacity costs UK £14bn
A lack of capacity at Heathrow is costing the UK economy £14bn a year in lost trade, according to a report commissioned by the airport. [The September 2011 report said the loss was £14 billion over 10 years, not per year].
That figure could rise to £26bn a year by 2030, the report said.
Heathrow bosses are keen to see a third runway built at the west London airport, but the government has ruled it out for the time being.
The government has asked a commission headed by Sir Howard Davies to advise on future UK airport capacity needs.
The Davies Commission is expected to present an interim report to the government by the end of 2013, with a full report due in the summer of 2015 – after the next general election.
Heathrow’s report, “One hub or none”, was prepared for the airport by consultants Frontier Economics. It was commissioned to inform Heathrow’s response to the Davies Commission but is not its formal submission.
The report said that the choice for the UK was not between two hubs or one, but one hub or none.
‘Lay doubts to rest’
It said only one airport could operate as a hub in the UK and said the government could either do nothing and “let the UK fall behind competitors”, add additional capacity at Heathrow or close Heathrow and replace it with a new larger hub airport.
Heathrow chief executive Colin Matthews said: “If anyone was still in doubt about the importance of aviation to the UK economy, today’s report should lay those doubts to rest.
“The new work we are publishing today shows that only a single hub airport can meet the UK’s connectivity needs and the choice is therefore between adding capacity at Heathrow or closing Heathrow and replacing it with a new UK hub airport.”
He told the BBC: “Transfer traffic is the mechanism that makes routes economically viable. If you could not offer the feed, a lot of routes would not be possible.”
However, critics said the report lacked credibility. Joss Garman, political director of Greenpeace, said: “This completely biased report from the owners of Heathrow is out of sync with other more independent reports on London’s connectivity, and it simply recycles the aviation lobby’s tired and discredited arguments.
“The case for a third runway has never been weaker, and it’s time the aviation industry woke up to the reality that Heathrow expansion will never happen because it would be political, economic and environmental madness.”
On Tuesday, London Mayor Boris Johnson met Sir Howard, stating his opposition to a third runway at Heathrow, and putting forward the case for a Thames estuary airport.
The all-party 2M Group, which represents more than 20 councils close to Heathrow, has said it will tell the Davies Commission that loosening restrictions on Heathrow’s existing runways would destroy the quality of life for people living near the flight path.
A Department for Transport spokeswoman said that the UK was one of the best connected countries in the world, and maintaining its airport network was vital to the economy.
“The strength with which the different options for achieving this are put forward shows precisely why we were right to set up a proper independent review with the timescale to consider fully what is in the country’s interest,” she said.
A report by the Policy Exchange think tank last month supported replacing Heathrow’s existing runways with four new ones immediately to the west of the current site as the best option for increasing airport capacity in the UK.
It also advocated much tighter restrictions on operating hours, permitted aircraft type and the steepness of take-off and descent, in order to reduce noise pollution over London from current levels.
Other options include building a second runway at Gatwick or Stansted, expanding Luton, or replacing Heathrow with an airport in the Thames Estuary, as favoured by Mr Johnson.
Analysis – by Richard Westcott BBC transport correspondent
I’ve just looked back through my notes from the start of the year.
“Dead and buried” was the phrase a senior person at the DfT used to describe to me a third runway at Heathrow. Just a few months after that Justine Greening, the Transport Secretary at the time, effectively told me that she was against the idea.
What a difference a few months and some expensive lobbying makes. Justine Greening has been unceremoniously shunted out of the way and the idea is now firmly back on the table. It’s also backed by some big hitters across the business world, unions, aviation bosses and many politicians.
But don’t let that fool you into thinking the diggers will move in any time soon, if ever.
First, there’s the rabid opposition it would face from the likes of London Mayor Boris Johnson, the Lib Dems and the hundreds of thousands of Londoners who’d be affected by the noise.
Second, Sir Howard Davies might not actually recommend it when he reports back in 2015, and even if he does, the next government will have to back it. If it clears all those hurdles, Heathrow’s owners then say it will take at least eight years to get planning permission and finally build the thing.