This week has seen the Chancellor of the Exchequer state that it is the government’s position that the third runway at Heathrow Airport must proceed. Before auditioning to be a stand up comedian by saying it should be completed and operational within 10 years.
There are a lot of reasons for and against the expansion of airports. But as the government is positioning this as that of economic necessity, I thought it useful to give a short primer on the economic impacts of airport expansion.
To me, understanding the economic impacts of any transport scheme boils down to two things. First is the actual estimated benefit, and the second is the benefit most acutely felt by people – namely jobs, incomes, and costs.
So, what is the economic benefit of airport expansion?
The report Reeves used was unremarkably funded by Heathrow Airport. The airport is in the wrong place but unless replaced with Foulness or Boris Island likely to stay with us, at least it has fewer bird strikes.
Heathrow is no longer being unduly favoured and wants to fund it’s investment privately. Providing all the competing airports have the same flexibility seems fair.
Heathrow has just reached yet another passenger limit of 89m for 2024. Equally City, Gatwick and Luton all have reached records and have their own capacity plans.
One factor that has changed is in the past HRW was a notorious transit centre with up to a third of passengers just changing planes (which they could do elsewhere as not much benefit to the UK). This appears to have changed as CAA data shows mere fractional numbers. There is a new pattern of ultra-long flights and use of smaller planes for direct connections. BA’s alliance with Iberia means Madrid is used more, Schipol is a more effective transit airport, Istanbul offers new competition, as well as the continuing dominance of Dubai.
The Government needs to decide if it wants a domestic air service with regional airports. The overheads of operation are already taxing enough without APD which could be lifted for the smallest under 1m annual passengers for connectivity and development. There could be a transitory band of 50% between 1 m and 3m.
I think the Government and the owners should sit down and realise that Heathrow is not the transit hub that it was and regard it simply as a large, busy regional airport serving a large capital city and financial centre. Airports like Schipol are simply better placed in Europe for what they do. Don’t try to compete.
I was brought up and went to school under the flightpath: the Airport’s big enough already.
“One factor that has changed is in the past HRW was a notorious transit centre with up to a third of passengers just changing planes (which they could do elsewhere as not much benefit to the UK). This appears to have changed as CAA data shows mere fractional numbers.”
I’m not sure that’s quite right.
The airport survey shows very low ‘transit’ passenger numbers but the CAA defines transit passengers as those who arrive and depart on the same aircraft.
https://www.caa.co.uk/data-and-analysis/uk-aviation-market/airports/uk-airport-data/
The departing passenger survey still shows high numbers (though a lower share than in the past) of ‘connecting’ passengers who change planes but don’t leave the airport.
https://www.caa.co.uk/data-and-analysis/uk-aviation-market/consumer-research/departing-passenger-survey/
@Jamie Thank-you for the clarification, I wondered where that had been hidden.
For years we had transit lounges, corridors, passport by-passes, documents for passengers who did not leave the airport or legally enter the country’s jurisdiction travelling on a through tickets with bags checked to the final destination.
Now it is restricted to passengers who do not ‘leave the aircraft’. A technical stop for servicing refueling. (Some UK airlines like LoganAir do make stops – Kirkwall has 6% transit)
On balance that makes a large difference to public consent and almost none to the promotor’s business case for expansion that serves any passenger & aircraft.
UK business and government ( maybe exotic holiday clients and minority reunions ) gain from a greater selection of flight destinations than would be justified purely from UK demand.
For disclosure the 2023 Heathrow traffic ratios are
International . _ . 70%
Domestic . _ . 2.5%
‘Connecting’ passengers
Domestic . _ . 3.3%
International . _ . 23.8%
The International Connecting passengers are the problematic ones since they are not affiliated with the UK and I remember seeing a higher figure of 30% when capacity expansion talks began. Could be a declining trend.
The international business of serving connecting flights is competitive.
On the one hand if a 30 year investment has been made in capacity the Airport will seek out additional connecting business. Similarly if considering the investment the Airport cannot rely upon traffic that can at any time be tempted away by better terms elsewhere.
When the airport and the government were the same entity their policy was aligned.
Now the government has it’s own policy and economic needs to balance. This could be determined by it’s tax policy. It is unusual for the government not to tax everything it can, so is there an international rule about connecting flight passengers. After all they are charged for airport fees. Was the privatisation of Heathrow subject to exemption?
‘Transit’ rules. If you are merely transiting through a UK airport for less than 24 hours, APD does not apply. Therefore, you can circumvent this tax by initially departing from a nearby airport and only passing through the UK en-route to your final destination. This allows you to bypass APD while still flying out of a UK airport for your connecting flight.
The rub surely is that on the one hand the government is claiming “economic growth” but on the other hand they’re claiming “this isn’t to enable more flights, just improve efficiency”. It doesn’t take a genius to work out that any real “economic growth” would be about more capacity and more flights, not a few planes here and there saving 10 minutes.
Meanwhile, near the other end of HS2 phase 1 in Birmingham, there’s an underused airport that’ll be 45 mins away from London via HS2 and is much more accessible than Heathrow from the North and Midlands. If you truly wanted to sustainably develop air travel and tip some economic benefit away from London you might consider that a development priority. Of course it’s not owned by HAL so wouldn’t feature in their report!