New GACC research paper indicates higher Gatwick charges for runway could lead to airlines moving to other airports
There is a problem about how Gatwick would pay for a 2nd runway, bearing in mind the airlines that use it are not keen on extra charges. Local campaign GACC (Gatwick Area Conservation Campaign) has produced a short research paper looking into the issue. “Paying for a new Gatwick runway.” They conclude that the steep rise in airport charges at Gatwick which would be needed to pay for a new runway could cause airlines to decamp to other airports such as Stansted or Luton. The GACC study is based on the estimates made by the Airports Commission that the cost of a new Gatwick runway would mean a rise in airport charges from the current £9 per passenger to £15 to £18, rising to £23 at the peak. Chairman of GACC, Brendon Sewill pointed out: “That is a rise of over 100% and would be serious shock for airlines. easyJet and BA have already expressed anxiety about higher charges, and their unwillingness to pay them. Stansted is at present half full and would be overjoyed to attract business from Gatwick.” Manchester airport is a salutary reminder of the risk; its new runway opened in 2000 but was followed by a fall in passenger numbers. Manchester airport is still only at about 60% of the capacity of a single runway. Competitive pressure from other airports could make the financing of a new Gatwick runway challenging.
Higher Gatwick airport charges could lead to airlines moving to other airports
24th April 2016
(GACC – Gatwick Area Conservation Campaign – press release)
The steep rise in airport charges at Gatwick which would be needed to pay for a second runway could cause airlines to decamp to other airports such as Stansted or Luton: that is the conclusion of a new research study published today.
Written by economist and former Treasury adviser, Brendon Sewill, the study is based on the estimates made by the Airports Commission that the cost of a new Gatwick runway would mean a rise in airport charges from the current £9 per passenger to £15 to £18, rising to £23 at the peak.
Sewill points out: ‘That is a rise of over 100% and would be serious shock for airlines. easyJet and BA have already expressed anxiety. Stansted is at present half full and would be overjoyed to attract business from Gatwick.’
The study shows that the result could be the same as happened at Manchester: when a new runway was opened in 2000, it was followed by a fall in passenger numbers. Manchester airport is still only at about 60% of the capacity of a single runway. [Link CAA airport data 2015. 23 million passengers at Manchester]
Sewill was asked how his prediction that a new runway could be a white elephant could be reconciled with warnings by GACC that a new runway would mean worse noise, worse pollution, worse traffic congestion etc. His answer: ‘A new runway would not be opened until 2030, and it is difficult to predict the future that far ahead. There is a fair chance that the runway would prove an economic failure but equally a fair chance that Gatwick would grow to become as large as Heathrow today. Either would be a disaster.’
The research study is the second in a series published by GACC. Paying for a new Gatwick runway – by GACC
The first study was on Ambient Noise, and is on the GACC website www.gacc.org.uk/research-studies
The Conclusion of the report states:
What conclusions can be drawn? Or, as the Victorians might say, what morals can be drawn from this cautionary tale?
First, for the past four years there has been unending discussion of where a new runway should be built. Each airport has spent millions on lobbying, newspapers have carried innumerable articles, everyone in every pub has a view on where it should be. But it seems that no one has stopped to ask: “Who will pay?”
Second, the predicted 100% increase in airport charges at Gatwick could cause a substantial shift to Stansted and Luton. This could become a vicious spiral if higher chargers led to fewer passengers at Gatwick which meant fewer to share the cost. Economic analysis reinforces the common sense view that there is no point in building a new runway at Gatwick while Stansted remains only half full.
Third, competitive pressure from other airports could make the financing of a new Gatwick runway challenging.
Necessary rise in price per flight at Gatwick with a 2nd runway:
“In order to pay the cost of a second runway, the Commission states that passenger charges would rise from £9 at present to ‘between £15 and £18, with peak charges up to £23.’ ”
This is from the Airports Commission consultation document, November 2014, para 3.41.
Stansted Airport’s charges can be seen here
Gatwick Airport’s charges can be seen here
EasyJet CEO, Carolyn McCall, again says there is no economic case for a Gatwick runway
Carolyn McCall, the CEO of EasyJet – the largest airline using Gatwick airport – has again said that there is no “economic reason” to build a 2nd runway at Gatwick. She believes it does not need to expand, because of a lack of demand from passengers. She would prefer a runway at Heathrow, as EasyJet and other airlines are “queuing up to get in”. They could make more profit there. Though the airlines want a new Heathrow runway, it is both physically, geographically, environmentally and politically very, very difficult indeed. Gatwick is also geographically and environmentally very, very difficult. For Gatwick to build a new runway, the cost would have to be paid by the airlines, which means flights costing more for passengers. As the budget airlines make thin profits (perhaps £7 per passenger after tax), adding on an extra £30 + to a return trip is utterly contrary to the low cost airline business plan. On dirt cheap flights, £30 extra is enough to matter. Even though easyJet is currently Gatwick’s biggest customer, Ms McCall said it had “never proved it can really be the kind of airport that Heathrow is.” Heathrow slot pairs can cost £25 million, but EasyJet got their Gatwick pairs for about £1 million.
Gatwick’s main airline, easyJet, questions Gatwick case for 2nd runway and does not want to pay higher landing charges
Carolyn McCall, CEO of EasyJet, the largest airline at Gatwick, has said passengers want expansion at Heathrow, not at Gatwick. Ms McCall said easyJet is “quite concerned” at the prospect that Gatwick’s landing charges would rise to pay for a 2nd runway. They are having confidential talks with the airports on future charges. EasyJet makes on average £8 profit per seat. If Gatwick’s charges doubled from the current £9 to an average of £15 to £18 (or even up to £23) as predicted by the Airports Commission, this would hit EasyJet’s economics. Ms McCAll said: “This whole issue of capacity should be about where the demand is. Airlines have to want to go into that airport, and the congestion we have is predominantly around the Heathrow hub. Passengers need to really value what this infrastructure brings, and if they don’t see any benefit it’s going to struggle.” A new runway risked emulating unpopular toll roads. “It will be years and years before [passengers] see any positive effect.” As one of the UK’s largest and fastest growing airlines, EasyJet’s opinion will need to be given careful consideration by the Commission.
EasyJet’s Carolyn McCall says it is “unfair” for airlines to have to pre-fund airport expansion – wants someone else to pay
Carolyn McCall, CEO of easyJet, has claimed it is “very unfair” to expect airlines to fund runway building and airport expansion before the work takes place. She said “quite a big negotiation” will have to take place, whether (if) Heathrow or Gatwick is chosen. The cost of the expansion at Heathrow would be about £18.6 billion; Heathrow Hub at £13.5 billion, or Gatwick at £9.3 billion. Ms McCall has a main base at Gatwick, but backs a runway at Heathrow, expecting easyJet could make more money there. Willie Walsh of IAG has often said that the cost of Heathrow expansion is “outrageous” and insisted “we wouldn’t be prepared to pay for or to support the development”. Carolyn McCall said the issue of pre-funding is a massive issue for airlines – and therefore for airline passengers – as it would mean more expensive air fares for perhaps up to 10 years before the runway was completed. She claimed it was “a very unfair way of funding infrastructure development which is to the benefit of the country.”… “There are lots of negotiations to be had between Heathrow and airlines, including us, as to how we would operate at Heathrow and at what cost and with what infrastructure.” She wants a runway.[But she wants someone else to pay for it, so flying for leisure can become even cheaper.]
Gatwick “promises” to cap landing charges to £15 + inflation for 30 years (if it gets an unspecified non-existent 30 year “contract” from Government)
Gatwick airport, in frenetic publicity in the months before the Airports Commission runway recommendation has made various pledges – in the hope of currying favour. It says it will “bear all the main risks” of a new runway. Sir Roy McNulty, chairman of Gatwick, has written to Sir Howard Davies saying – among other things – that the landing charge will be kept at £15 (plus inflation) for 30 years. As long as there is no new Heathrow runway. (It is currently £9). Sir Roy said it is “in return for Government agreeing a 30 year contract” though exactly what that means is not explained. Presumably a contract that there will be no other runway? [Government has not made any such deal with Gatwick, and would be unlikely to]. Gatwick also says it will “bear all the main risks of the expansion programme . . . including long-term risks related to traffic levels, market pricing, construction and operating costs”. How exactly? Gatwick’s main airline, EasyJet, is not happy with charges rising to £15. The Airports Commission consultation documents considered Gatwick’s estimate of £15 to be too low, and instead considered “average charges rising to between £15 and £18, with peak charges of up to £23.” These higher levels were due to lower estimated levels of air passenger demand than Gatwick’s optimistic figures, and higher infrastructure costs. [ Airports Commission’s consultation document Page 47].