IATA forecasts UK air passengers by 2030 perhaps 25 million below DfT – so no need for a runway as early as 2030

Date added: 19 October, 2016

IATA, the airlines’ trade association, expects that with a “hard Brexit” the number of UK air passengers could be 25 million fewer than government forecasts. 25 million passengers is about the entire annual throughput of Stansted. Though all forecasts are bound to be inaccurate, the problems of the weaker £ and changes to the relationship with the EU are likely to cut demand for air travel in the coming decade. Heathrow etc are keen to claim (having been totally against Brexit before the Referendum) that the UK now needs even more airport capacity. The reality is more than demand may fall, after 4 years of rapid growth before the EU referendum. IATA expect a hard Brexit (more likely) could cause air traffic to be 8-9% lower than with a soft Brexit (less likely). IATA’s forecast of 257 million UK flyers would equate to a total of just over 290 million passengers, including transfers, by 2030. (About 251 million in 2015). The Airports Commission believed, based on DfT forecasts, that a new runway should be constructed in the UK by 2030, predicted an increase to 315 million passengers by 2030. With the lower forecasts, that would not be till 2040. IATA’s revised forecasts indicate air passenger demand near the lower limit of the DfT forecasts.
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Hard Brexit ‘will reduce need for airport expansion’

Airlines’ trade association says number of UK air passengers could be 25 million fewer than government forecast

By Gwyn Topham Transport correspondent

Tuesday 18 October 2016

The need for urgent airport expansion by 2030 could be diminished by Brexit, according to a new study suggesting the number of UK air passengers could be around 25 million fewer than forecast by government – or more than the entire annual traffic of Stansted.

Although airports have argued that Britain’s future isolation from the European Union requires rapid investment in airport capacity, the analysis by economists from airline industry body Iata predicts UK air traffic will tail off in the next two years, having experienced four years of rapid growth before the EU referendum.

They forecast that a hard Brexit [see definition below] will exacerbate an imminent loss in demand and leave passenger traffic around 8-9% below that resulting from a soft Brexit – the “most benign but arguably least likely scenario”, according to Iata.

This claim was repeated this week by the transport secretary Chris Grayling at the Commons transport select committee. However, under the lower demand scenario that the DfT considered, London’s combined airports would not be full until 2040.

Revised projections from Iata suggest traffic will be nearer the lower limit of the forecast if the UK goes for a hard Brexit, compounding the impact of a falling pound and increased travel costs from limited access to the EU aviation market.

Iata’s analysts said that reduced air capacity to and from the EU would “be expected to increase directly the cost of air travel with the bloc”.

If ongoing membership of the European Common Aviation Area is forfeited, Iata’s report warns, the impact would be “frontloaded” and the costs of air travel to the UK would remain higher for decades, dampening demand.

However, the weaker overall demand will make little difference to the main contenders for a new runway in south-east England, with Heathrow having effectively reached capacity in 2011, and Gatwick’s subsequent rapid growth seeing it forecast to reach capacity by the next decade if not before.

https://www.theguardian.com/world/2016/oct/18/hard-brexit-reduce-need-airport-expansion-heathrow?CMP=twt_gu

IATA said:

The International Air Transport Association (IATA) expects 7.2 billion passengers to travel in 2035, a near doubling of the 3.8 billion air travelers in 2016. The prediction is based on a 3.7% annual Compound Average Growth Rate (CAGR) noted in the release of the latest update to the association’s 20-Year Air Passenger Forecast.

Eastward shift, developing market focus

The forecast for passenger growth confirms that the biggest driver of demand will be the Asia-Pacific region. It is expected to be the source of more than half the new passengers over the next 20 years. China will displace the US as the world’s largest aviation market (defined by traffic to, from and within the country) around 2029.

India will displace the UK for third place in 2026, while Indonesia enters the top ten at the expense of Italy. Growth will also increasingly be driven within developing markets. Over the past decade the developing world’s share of total passenger traffic has risen from 24% to nearly 40%, and this trend is set to continue.

and

The 20-year forecast puts forward three scenarios. The central scenario foresees a doubling of passengers with a 3.7% annual CAGR. If trade liberalization gathers pace, demand could triple the 2015 level. Conversely, if the current trend towards trade protectionism gathers strength, growth could cool to 2.5% annual CAGR which would see passenger numbers reach 5.8 billion by 2035.

“Economic growth is the only durable solution for the world’s current economic woes. Yet we see governments raising barriers to trade rather than making it easier. If this continues in the long-term, it will mean slower growth and the world will be poorer for it. For aviation, the protectionist scenario could see growth slowing to as low as 2.5% annually. Not only will that mean fewer new aviation jobs, it will mean that instead of 7.2 billion travelers in 2035, we will have 5.8 billion. The economic impact of that will be broad and hard-felt,” said de Juniac. Link

The DfT forecasts in 2013

can be seen at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223839/aviation-forecasts.pdf

Their unconstrained forecasts (ie. no limit on adding runways) show (Page 66) show 280 to 360 million passengers per year by 2030

and

the DfT Constrained forecasts (ie. no new runways) shows 276 to 347 million passengers by 2030

From page 71 of

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223839/aviation-forecasts.pdf

and

From Page 68 of DfT 2013 forecasts:

The results for million terminal passengers per annum (mppa) at the national level are summarised in Table 5.1. This table shows that, after accounting for airport capacity constraints under the ‘max use’ capacity scenario, the number of UK air passengers is forecast to rise to 315mppa in 2030, within the range 275mppa to 345mppa. By 2050, the number of UK air passengers is forecast to reach 445mppa within the range 340mppa to 445mppa.

And

Extracts from an IATA Airlines International article:

(not dated – some time between July and September 2016?)

…….

The nature of future air services arrangements between the United Kingdom and Europe will be central to the success of such a policy. As it stands, a completely open market exists with UK carriers able to operate as they see fit within Europe. A key question is whether the Brexit negotiations will allow this state of play to continue.

If not, a separate bilateral arrangement between the UK and the EU may be necessary. Moreover, new agreements with such other major aviation markets as the United States and Canada—covered at the moment by EU-level policy—would also be needed.

The EU has seven comprehensive, multilateral, air transport agreements in place with Third Countries. And it has already started working on EU-wide bilaterals with China and the ASEAN states. Re-negotiating all these agreements as an individual country would involve a host of factors and could have far-reaching effects on UK carriers as well as carriers that rely heavily on the UK market like Ryanair. The end result could push up prices and pull down the shutter on airline connectivity.

An alternative to new bilateral arrangements would be UK membership of the European Common Aviation Area (ECAA). This extends beyond EU borders to countries such as Norway and Iceland. In total, it covers 36 countries and 500 million people.

While the United Kingdom would have no problem in meeting ECAA requirements, membership does require a broad acceptance of EU policy and close economic cooperation.

A potential spanner in the works is the forthcoming new EU Aviation Strategy. Accepting it would be essential to joining ECAA but only EU countries are allowed input into its final form. Should the United Kingdom authorities feel there is a misalignment with its
own aviation policy, there is little recourse but to refrain from joining ECAA.

In short, given that the United Kingdom has voted to leave Europe, how likely is it to accept EU aviation laws and broader EU policy over which it has no influence?

The timing must also be a consideration. Legal uncertainty—which may dampen the expansion of air services—will doubtless result if arrangements are not concluded before the United Kingdom leaves the EU.

Brexit predictions

The airline response to date has been a mixed bag. IAG is reported as saying Brexit is not expected to have a long-term impact on its business, while easyJet noted that there had been “no noticeable change in passenger booking behavior” in the aftermath of the referendum.

Delta Air Lines, on the other hand, said in a statement: “With the additional foreign currency pressure from the steep drop in the British pound and the economic uncertainty from Brexit, Delta has decided to reduce six points of US-UK capacity from its winter schedule.”

Whatever happens, the full effects of Brexit will take time to materialize. Preliminary estimates, however, suggest that the number of UK air passengers could be 3%-5% lower by 2020, driven by the fall in the sterling exchange rate and the expected slowdown in economic activity relative to a no-Brexit scenario. The scale of any impact on passenger demand will, of course, depend on the shape of future arrangements between the United Kingdom and the EU as well as other trading partners.

http://airlines.iata.org/analysis/seizing-the-brexit-opportunity

What is Hard Brexit:

The Evening Standard defined “Hard” Brexit as:

While there is no hard-and-fast definition of ‘hard Brexit’ it rests on the following premises:

• Britain will introduce stricter controls on EU immigration. Mrs May has said that the referendum has given her government a mandate to curb immigration from EU nations.

• Britain will likely leave the EU single market. If Mrs May prioritises controlling EU immigration to the UK over access to the single market it is likely Britain will be forced to leave the trade bloc.

As a member state Britain has to accept the four ‘fundamental’ freedoms of the single market – the free movement of goods, service, capital and people. In other words Britain cannot benefit from free trade in goods, services and capital without the free movement of people.

• Trade barriers may be imposed between Britain and the EU. If Britain leaves the single market a new trade agreement must be established between the UK and its European neighbours – with the UK having rejected the fourth freedom and left the single market it is unlikely to be a free trade agreement.

http://www.standard.co.uk/news/uk/explainer-what-is-hard-brexit-a3365896.html

See earlier:

IATA warns UK air passengers could decline 3% – 5% by 2020 due to airline uncertainties and fall in the £

June 25, 2016

Following the UK’s June 23 vote to leave the European Union, IATA said preliminary estimates suggest UK air passengers could decline 3%-5% by 2020, following an expected economic downturn and predicted falling £ exchange rates. IATA’s evaluation of the impact of Brexit notes that there is considerable uncertainty on details and timescale. A weak £ could make trips to the UK cheaper, but as there are far more outbound trips from the UK than inbound, and foreign trips for Brits going abroad will cost more, the net impact is lower numbers of passengers. A possible future path for the UK aviation sector would be membership in the European Common Aviation Area (ECAA).That would enable the UK to have continued access to the Single Aviation Market. However, it requires acceptance of EU aviation law across all areas, limiting the UK’s policy freedom. IATS says: “The same would apply to regulations more generally if the UK were to join the European Economic Area. For example, the strongest legal impediment to airport expansion comes from EU local air quality rules which would still apply to the UK if EU membership were exchanged for EEA membership.” IAG’s share price fell immediately, and easyJet wrote to the UK government and the EC to ask them to prioritise the UK remaining part of the single EU aviation market. BMI said it might “have to review” its bases in the UK.

Click here to view full story…

And back in 2013 with the DfT forecasts – details at the link below:

Expected drop in demand for air travel seriously undermines rationale for airport expansion or new runways

January 31, 2013

The anticipated number of people wanting to fly from British airports in future has been cut substantially in official forecasts to reflect the nation’s economic decline. This means that now official reason for doubting the aviation industry’s claim that new airports are urgently needed to meet demand. However, the DfT said the figures meant all airports in London and the south-east would probably be operating at full capacity by 2030, though it could take until 2040 for that to happen. While in 2003 the DfT anticipated some 495 million passengers per year passing through UK airports, by the 2009 forecast this had dropped to 465 million, and by 2011 it was 345 million. Now that figure is 315 million – some 7% lower even than the 2011 figure. Even with the 345 million passenger forecast, it was very borderline whether any new runways were needed for the London area. The new forecasts reinforce the doubt. As there will be larger planes used in future, the anticipated increase in passengers can be accommodated on the existing runways. The DfT does not anticipate any significant rise in the proportion of business passengers, out to 2050.

https://www.airportwatch.org.uk/2013/01/dft-2013-forecasts/