The Airports Commission model was flawed and risks steering the Prime Minister towards the wrong answer—and if Heathrow is picked, saddling customers with higher costsby John Kay / October 15, 2015 / Leave a comment
Dear Prime Minister, Within the next few weeks, you will have to make one of the most significant, and controversial, decisions of your premiership: whether to expand London’s airport capacity, and if so, whether to choose Heathrow or Gatwick. You will be faced with several thousands of pages of documents prepared by the Airports Commission which you appointed, and an even larger volume of submissions from interested parties.
Howard Davies, chair of the five-person Commission, concluded emphatically in his report published on July 1st that the right solution was to expand Heathrow. He overstates that case. The Commission has given too much weight to a model which includes an excess of detail, and makes too many assumptions about the distant future. It should have focussed on a limited number of central issues: the value of a hub, the costs of the rival options, the nature of airline competition, the value of landing slots and the cost of capital. Above all, the analysis suffers from a mechanical projection of the present into what is in reality a highly uncertain future.
Heathrow Airport is 15 miles west of central London. It has about 650 daily slots (a slot comprises one takeoff and landing), which equates to 470,000 aircraft movements, catering for 74m passengers a year. Forty-seven million passengers start or end their journeys at London and another 13.5m change planes there (and hence count twice). Heathrow became a hub airport when planes struggled to cross the Atlantic and remains a centre for “hub and spoke” operations, not only for British Airways but for the Lufthansa/United Star Alliance and the Delta/Air France/KLM Skyteam. Gatwick Airport, 25 miles south of the city, has around 350 slots, 262,000 aircraft movements and 39m passengers. Less than 5 per cent of Gatwick users are transfer passengers.
Heathrow has two runways and Gatwick one. (There are four at Frankfurt, JFK and Paris Charles de Gaulle). Heathrow has operated at full capacity for years and Gatwick is approaching it. Demand for air travel is growing, but little faster than GDP.
The Airports Commission reviewed proposals to build a third runway at Heathrow…