The economy is not dependent on a 3rd runway at Heathrow. Here’s the evidence

16/2/14

by John Stewart

 Heathrow Airport is more honest than many of its supporters when making the economic case for a third runway.  They acknowledge that it is not the only game in town.  The issue was highlighted last week when DeAnne Julius, a former member of the Monetary Policy Committee of the Bank of England and British Airways chief economist in the 1990s, wrote a piece in the Financial Times (No one answer to the London airport question, 14/2/14 – http://on.ft.com/1c4OyKj) suggesting that a two-hub solution may be best for London’s economy, i.e. a second runway at Gatwick rather than a third runway at Heathrow.

I will return to Julius’s case for Gatwick in a moment but first to acknowledge there is merit in Heathrow’s argument.  Their case is well-known.  The Airport argues that, unless  a third runway is built, London will have fewer direct flights than other European hub cities (Paris, Frankfurt, Amsterdam and Madrid) to the key business destinations in emerging economies like China, India and Mexico.  And that this matters because there is evidence that direct flights are an important tool in attracting business.

Heathrow argues that it is only a major hub airport which can provide those flights because the transfer passengers which a hub attracts provide the extra passenger numbers which make frequent flights to these destinations commercially viable.

Organisations like the Independent Transport Commission support this view.  Peter Hind, author of research they commissioned and highlighted in the Financial Times (16/2/14), said “Regular long-haul routes need transfer passengers to supplement those starting or ending journeys locally.  Hosting a hub will remain key to sustaining and or developing global aviation connectivity.”  He added: “More UK passengers already transfer via Schiphol and Charles de Gaulle hubs than through Heathrow, Amsterdam, Paris and others are able to compete with London by hosting growing networks.”

Boris and the backers of an Estuary option make a similar argument but go further.  They are arguing for a mega-hub (4 or more runways, 24 hour operation) that would give London the hub airport inEurope.  It would be in the super league alongsideDubai and the fast-expanding airport inIstanbul. Paris,Frankfurt and the other European hubs would be left behind.

The argument Julius makes is different.  Here’s how she put it in the Financial Times:

“There are clearly advantages to large hub airports, especially for cities with small domestic markets. For Singapore or Dubai, it is imperative to have an airport large enough to attract transfer traffic on which the small domestic market can piggyback. But London is the very opposite of Singapore or Dubai. It is the quintessential international city. It has a big domestic market of business and leisure travellers who want to fly from London. It also attracts large numbers of business and tourist visitors from other countries who want to come to London, not transfer through it. The larger this so-called ‘origin and destination’ traffic is, the smaller will be the benefit to a city of attracting transfer traffic. According to the Airport Commission, London is the largest aviation market in the world (in terms of passenger numbers) and the largest ‘origin and destination’ market. In other words, like New York, London is both large enough and international enough to support two international airports. It does not need to consolidate capacity in a single mega-hub – whether at Heathrow or in the Thames estuary – in the hope of attracting more transfer passengers”.

Her argument rests on this key fact: more passengers (business people and tourists) terminate in London than in any other world city.  BecauseLondon is the magnet, Heathrow does not need to expand as a hub in order for transfer passengers to provide sufficient numbers of people to fill flights to destinations across the world that would not otherwise be commercially viable.  If airport capacity is provided – at whatever airport – people will flock to the capital in even larger numbers, drawn by the magnetic pull ofLondon. London is the hub.

It is becoming ever more clear that the economy is not dependent on a third runway being built at Heathrow.

Comments are closed.