Heathrow has upped the ante in its battle to secure approval for a third runway, claiming that air passengers are paying an average of £95 more for a return ticket than they should be due to a lack of spare capacity at the West London hub.
The airport, which has been operating close to full capacity for a decade, said a lack of available take-off and landing slots means passengers are paying higher prices as there is insufficient competition on routes.
A report commissioned by the airport, produced by Frontier Economics, claims the average return ticket could be as much as £300 cheaper in today’s prices by 2030 if Heathrow is allowed to expand.
Two possible designs for a third runway at Heathrow have been short-listed by the government-back Airports Commission, along with a second air strip at rival Gatwick.
Heathrow is seeking to undermine its rival by claiming there would be greater benefits to passengers if both airports were allowed to expand. Gatwick has stated it will not build a second runway if its competitor is also given the go-ahead.
The expectation is most airlines would increase their take-off and landing slots at Heathrow, rendering a second runway at Gatwick unviable if both bases expanded.
The Airports Commission has determined that only one net new runway will be needed to meet aviation demand in the south east of England by 2030 although a second may be necessary by 2050.
Colin Matthews, Heathrow’s outgoing chief executive, said: “This research shows that not building a third runway at Heathrow will add hundreds of pounds to the cost of a family holiday, be a disincentive to doing business in the UK, and increase the cost of the goods and services that are imported and exported through Britain’s most important trade gateway.”
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Bloomberg says Heathrow claim that 3rd runway would mean lower air fares takes “a flight of imagination”
April 22, 2014
A report – by Frontier Economics – released by Heathrow last week, as part of its lobbying effort, sought to put a price on the way the airport has chosen to run at almost full capacity. The study makes out that the cost of building the new runway, terminal, changes to the road network, compensating people etc would only add £20 per ticket. Interestingly, Bloomberg Businessweek says “Heathrow officials did not respond to e-mails seeking comment” on these remarkable figures. A footnote buried on page 11 of the Frontier Economics study “notes that calculations for how much fares would fall once a 3rd runway were operational are “complicated by airline price setting,” which is typically focused on “maximizing profitability.” Indeed. ” Bloomberg is not convinced that air fares would necessarily fall if a new runway was built. They cite examples of new runways in the USA, where prices have merely risen. They also say the airline alliances would make fare cuts unlikely. Airlines have no interest in cutting fares. Bloomberg says: “selling the project as a fare-lowering exercise takes a flight of imagination.”
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Meanwhile the Daily Mail takes it at face value:
Heathrow holidaymaker and business flier fares will soar if no new runway is built, warns new study
By DAILY MAIL
17 April 2014 (This is Money)
Failing to build a third runway at Heathrow will add £300 to the cost of an average return fare from the airport by 2030, according to a new study.
The report by consultancy Frontier Economics, commissioned by Heathrow, said there was no doubt the South East needed new airports.
And it warned costs would soar at Heathrow if no new runway was built, with demand for flights significantly outweighing supply.
Building the runway would add £20 to each ticket – an overall saving of £300 on each ticket. Building a second runway at Gatwick, however, would result in a saving of just £4 per ticket over the same period. The study also estimates that passengers are paying an extra £95 at present at Heathrow than they would if it had another runway.
‘This report makes clear that if the UK chooses to expand only one airport, then the greatest consumer benefits from increased competition and lower fares are to be gained at Heathrow,’ said the airport’s boss Colin Matthews.
Frontier also estimated that an enlarged Heathrow would connect London to 40 new destinations, and only seven at a bigger Gatwick.
‘Heathrow Airport would lead to substantially greater reductions in ticket prices and greater connectivity,’ said Frontier.
Sir Howard Davies’ Airports Commission will not make its final recommendations until 2015.
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Third runway would lead to lower air fares, says Heathrow
By Jane Wild (FT)
©photolibrary.heathrow.comHeathrow airport’s Terminal 2 building
Heathrow airport says the cost of an average air fare would fall sharply if it had a third runway, according to research that backs its case for expansion.
It says passengers pay an extra £95 more for an average return because airlines are fighting for space at Heathrow, and this pushes up prices.
A report by the consultancy Frontier Economics says £300 could be cut from a return air fare by 2030 if the west London airport were allowed to expand.
Aviation analysts said it would be difficult to calculate the saving.
“Having extra capacity at a busy London airport would increase competition, which based on historical behaviour would have the impact of driving down ticket prices. It would be hard to quantify by how much that would be,” said Jack Diskin, at Goodbody brokerage.
Anand Date, at Deutsche Bank, said taxes made up a significant proportion of ticket prices, so any cut would have to come from the remainder that went to airlines.
Heathrow’s research said both it and Gatwick should be allowed to expand to bring the greatest benefits to passengers, because both airports will be heavily congested by 2030.
A commission appointed by the government is assessing how best the UK’s southeast air space, the busiest in the world, could take more flights.
Heathrow said with a third runway it would be able to add 40 new, direct routes, to destinations such as Kolkata, Lima and Mombasa. It would also be able to improve connectivity within the UK, with routes to places such as Inverness, Jersey and Durham – destinations that have been cut as space has become more expensive.
Full FT article is at http://www.ft.com/cms/s/0/0c26a398-c587-11e3-97e4-00144feabdc0.html?siteedition=uk#axzz2z82LG6dT
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The Frontier Economics report is at
Impact of airport expansion options on competition and choice
A REPORT PREPARED FOR HEATHROW AIRPORT
April 2014 (93 pages)
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