London Heathrow (LHR) Capacity Expansion and Economic Sustainability

Student Desk Research Paper July 2014 London Heathrow (LHR) Capacity Expansion and Economic Sustainability Tymur Bairamov (ID:14271) George Friedrich (ID: 13038)

University of Applied Sciences Stralsund Airline and Airport Management Prof. Rasmussen

FRIEDRICH/BAIRAMOV

LHR Capacity Enlargement and Economic Sustainability

xii. Abstract

Abstract. The essence of the paper is to outline the issue of economic sustainability and capacity enlargement at London Heathrow Airport (LHR). The complexity arises due to acute demand for passenger air travel in London especially in the south-east area of London. The paper is split into a theoretical and a practical part. In order for obtaining a better understanding of the research project, the reader is given a briefing on airline and airport management before introduced to the essence of the paper. The authors then describe the evolution of capacity enlargement at LHR. The purpose and focus is thus to redefine the problem structure and indicate its short comings and resolutions. Findings of the paper address two possible ways of resolving the complexity of economic sustainability and capacity enlargement at LHR. A first resolution may be seen as a capacity expansion. A second resolution may be seen as an anti-capacity enlargement. The authors recommend LHR not to expand its capacity by any means but to sustain its economic performances.

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xiii. Preface Airport management Managing of an airport takes a lot of effort and involves many resources, not only human, but also technical. This huge process which has to be supported on a daily basis has to have advanced management structure which includes organized work of many institutional and organizational issues as well as interaction between stakeholders. Each airport builds a large transportation network and is a part of it, e.g. if there is only one airport existing it would have no particular utility of network. This means that every closed airport can decrease the usefulness of other airports and it is vital to build good connections between airports in local and international level to secure stability of flights, preventing different air traffic delays affecting by this issue.1 In a contrast to mentioned information above, it would be logical to name the fact of important right managing of every airport on its particular place. Due to that fact, airport managers should be aware of have to find themselves between buyers, travelers or business trip individuals as well as aircraft owners etc., and sellers, fixed

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base operators, airlines and so on, of aviation services and products. And an airport provides the marketplace where the sellers of different services meet their customers. The marketplace is ever-changing and this means for managers that they should constantly track on going changes to improve services of an airport in a relation of all stakeholders. At the same time, airport executives are required to coordinate different activities of various groups which might have conflicts of interests. This means that the human touch is so important in a network industry, therefore, leaders in such a field of business should be strong-willed and open-minded persons.2

1

HOERTER, Sam (2001): The Airport Management Primer (p.9) (retrieved: 15-07-14)

2

HOERTER, Sam (2001): The Airport Management Primer (p.8) (retrieved: 15-07-14)

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Ownerships

The main characteristic of every airport is to being a part of air transportation network. Airports, plus Airlines, plus Airways, equals to Airport Transportation Network. These three components, working together, should be in a harmony to achieve common goals and work with benefits. In many countries harmony of the Network is achieved by vesting ownerships of all three components in the national government and institutions, or for example, as in USA, Airports are normally controlled and owned by a local government, Airlines, except military, are privately owned, and Airways stay under control of the federal government.

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It can be said that the majority of airports in the World are directly owned and operated by central or local government, for example, by Civil Aviation Department of a country, which normally operates all or bigger part of country`s airports. The duties of the department include controlling of air traffic and meteorological services. Sometimes, an airport, which is used for civil and military representatives, can be under control of military authorities. The alternative to centralized government control is localized ownership, which means that the

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responsibility for controlling the airport, or sometimes a group of several airports, relies on municipal or regional authorities. The examples of such an ownership can be named as, United Kingdom, Germany and the United States.4 Additionally, it can be mentioned, that most U.S. public airports are under control of the local units of government, e.g. City/Country ownership. In such airports, civil servants are gathered into an Aviation Department within airports, which stands apart from other departments, as you can see on the example of Appendix B5. Advantages of this type of ownership can be mentioned as, resources of different other city or a country departments, or resources that can far exceed what the airport could prove if it act on a standing alone basis. The main disadvantage of this kind of ownership is that the leadership focus is not concrete enough, is diffused. 6 Another type of an ownership is an airport authority. It can be said that Airport authorities can be determined as separate public bodies which are created by state legislations. To enable legislation of an authority several factors should be considered as: concrete responsible person or political body for controlling the appointments to the authority`s governing body, determining 3

HOERTER,Sam (2001): The Airport Management Primer (p.4-5) (retrieved: 15-07-14)

4

DOGANIS, Roganis (1992): The Airport Business, Routledge (p.11) (retrieved: 15-07-14)

5

Example of Aviation Departments

6

HOERTER, Sam (2001): The Airport Management Primer (p.11) (retrieved: 15-07-14)

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if the authority fully controls its budget, personnel practices and contracts, and specify the authority`s power of eminent domain and the power of levy taxes.7 Authority is seen as the preferred method of ownership, due to numerous facts as, the leadership is more concentrated on airport issues, a metropolitan community has a chance to be better represented by the authority`s governing body, the airport staff can be less influenced by political institutions.8 The airport authorities have more autonomy and the aim of them is to set up more professional implementation of work in administration with greater professional abilities, undertaking and implementing long-term plans with a big range of perspectives. Such authorities were established in some cases as, national and regional level for operating several airports, and at a local level to control one, individual airport. The example is The British Airport Authority, also known as BBA, wish was established in 1966, and initially took only four government-run airports, three of them were situated in London and one in Scotland.9 Some of airports, the amount of them is few, are operated by authorities or companies, and this control is split between the public and private sector. This type of public and private ownership is called Mixed. This kind of airports are managed by companies,

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holding and operating concession, with both private and public shareholders. And some examples can be mentioned as, Italian large airports, one of them is Aeroporti di Roma, and 56 per cent of shares were sold to Alitalia which is privately owned itself (1992). Another example is New York`s J.F.Kennedy airport, which is run by the form of split ownership as well.10 A lot of big private organizations see the huge perspectives of the marketplace of airports, which cause split ownerships with public sectors, and investment of huge amounts of money for airports development rising potential profit. Some of small airports in size can be by a private ownership, which are restricted both in number and scope. As an example, which is symbolize a big breakthrough in private ownership, a privatization of British Airports Authority in 1987, additionally with a commitment by the conservative government of that time and the immediate privatization Britain`s larger regional airports. 11 Additionally, it can be also said, that in general, private sectors will not have tax exemptions, as public sectors.

7

HOERTER, Sam (2001): The Airport Management Primer (p.12) (retrieved: 15-07-14)

8

HOERTER, Sam (2001): The Airport Management Primer (p.12) (retrieved: 15-07-14)

9

DOGANIS Roganis (1992): The Airport Business, Routledge (p.12) (retrieved: 15-07-14)

10

DOGANIS Roganis (1992): The Airport Business, Routledge (p.13-14) (retrieved: 15-07-14)

11

DOGANIS Roganis (1992): The Airport Business, Routledge (p.14) (retrieved: 15-07-14)

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Moreover, public sector airport is free in decision making, and in our society, for citizens, more comfortable to feel themselves with public controlled ownerships over such a key economic asset.12

Operations and Maintenance

Airport, as a body of a human being, has some sorts of organs for maintaining the life of the airport and someone/something for realizing the needs of this huge organism. At the same time, the bigger airport, the needs of the organism are growing at the same proportion, and if the network effect works, this means that the airport must realize its maximum potential and expend due to economic growth. No matter what is the size of an airport, any of it is a complex asset composed of numerous interrelated facilities. The inspection program has to be provided within the airport by qualified employees, that continues the airport`s physical assets. The process of inspection involves such a component as, varying frequency, daily,

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means inspection of runways, weekly, meaning count rpm of rotating beacon, monthly, examining windsock fabric. In small airports it can be made by airport managers, but in bigger one, normally, personnel is specifically hired to perform the large schedule of the inspection, including daily, weekly, monthly and yearly check. 13 In addition to that, primary elements for a successful inspection program include the well and properly trained personnel, who is performing this inspections. Then, results of it should be recorded, better in a standardized format, after defining a problem, the inspection have to report about the incident to a responsible party. First of all, such inspection programs implement on safe and functional airport operation, as one the most important elements of the airport. 14 Another important issue in managing an airport is providing adequate telecommunication capability. Again, this factor can vary in the scale due to the volume of the airport. If it is a small airport, simple telephone system, and additionally, few hand-held radios may be enough for communication. When the volume of airport increases, and the need of advanced communication increases at the same time too. The telephone switchboards function with police dispatch capabilities, safety on the real-time basis, security monitoring, and central 12

HOERTER, Sam (2001): The Airport Management Primer (p.14) (retrieved: 15-07-14)

13

HOERTER, Sam (2001)The Airport Management Primer (p.36) (retrieved: 15-07-14)

14

HOERTER, Sam (2001) The Airport Management Primer (p.37) (retrieved: 15-07-14)

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command equipment for emergency operations. Telecommunications have links with offsite facilities, such as hospital emergency rooms, or it can be also mentioned, extended database, as the FAA`s air traffic control information, and all this may be also applied and integrated into the bigger airports communications core.15 One of main components in airport traffic control is Airport Traffic Control Tower, also known as ATCT, and this tower executes such functions as: directing, supervising and monitoring the traffic of arrival and departure, right in the airport and in the intermediate airspace within 5 mi from the airport. The tower is responsible for delivering clear data to all aircraft, and pilots, providing information concerning wind, barometric pressure, temperature, the state of operational and communicational conditions at the airport, and for all aircraft on the ground, except that engines which are at the maneuvering area neighboring to the aircraft parking slots called the ramp area, should be provided with the same information.

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Next important issue in

managing airport is Security. The term in frames of airport management includes policies, security infrastructure, and procedures within the terminal area. And of course, security concerns all users of the airport, as well as all areas of it. Security is a freedom of happening

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of injuries, danger or disappearance of a person or their property that is caused intentionally through acts of violence.17 The whole airport security function can be subdivided into three categories. The first one called Anti-hijacking activities. Second one is Traditional police services, which includes crime response, traffic enforcement and criminal investigation. The amount of security personnel and the whole security service directly depends on the size of the airport. The third type is Plant security. Some airports contact with a local police agency for providing the services. And some other, when specifically empowered by the legal side to do so, hire, train and equip their own in-house police force. And after this in-house police is responsible for all accidents, investigations, providing detective divisions for special occasions etc., but all in-house departments must have an external linkage with the judicial system, as well as with the state police accrediting agency.18

Financial strategies.

15

HOERTER, Sam (2001) The Airport Management Primer (p.37-38) (retrieved: 15-07-14)

16

HORONJEFF Robert et al. (2010): Planning and Design of Airports, Mc Graw Hill, New York (p.99) (retrieved: 15-07-14)

17

HORONJEFF Robert et al. (2010): Planning and Design of Airports, Mc Graw Hill, New York (p.467) (retrieved: 15-07-14)

18

HOERTER, Sam (2001): The Airport Management Primer (p.38) (retrieved: 15-07-14)

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One of the important issues for managing airport is to be aware of airport operating costs. This term includes a lot of sub points as: different costs for staff, e.g. personnel benefits and compensations, utilities and communications, some technical aspects as repairs and maintenance, promotion, advertising and sales, e.g. marketing, supplies and materials, different kinds of insurance, contractual services. Additionally, includes allocated overhead costs, as well as, administrative costs, and excludes non-operating costs such as debt service and depreciation.19 Apart of classical ways of sponsorships and finance to cover all costs, which create huge amounts of money, including expenses for personnel and different services, as well as technics, Federal financial assistance is available to many public airports, and few of privately-owned public-use airports also. This financial assistance is offered to acquire property and to construct certain improvements, for example, taxiways and runways. In the example of the U.S., it can be said, that these funds are managed by the FAA in its Airport Improvement Program, also known as A.I.P. All funds are covered by the money from federal taxes on the aviation system.20

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Another issue of financial topic is financing airport expansion. Normally, airports all over the World are financed by local and central government funding. This system can be no longer exist due to that fact, that for long-term planning bigger amounts of money are required, which is not possible to cover by government funding only. That is why, sometimes, it is needed to go for privatization or part-privatization of airports. This situation was seen in Great Britain in 1989, with decision of British Airways to part finance a second terminal at Birmingham airport.21

19

WYMAN Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.50) (retrieved: 15-07-14)

20

HOERTER Sam (2001): The Airport Management Primer (p.52) (retrieved: 15-07-14)

21

DOGANIS Roganis (1992): The Airport Business, Routledge (p.41) (retrieved: 15-07-14)

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Service quality Term of service quality can be divided into several. First part- Practical Hourly Capacity defines as maximum movements of an aircraft per hour assuming the average delay time no longer than four minutes, or other amount of minutes as the airport may set.

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Second one is Gate Departure Delay, means measurement of scheduled departure time at average and peak times to an average gate departure delay per flight in minutes. 23 Next one is Taxi Departure Delay- the delay of a taxi, average one, for departing airplane per flight in minutes- measured in comparison with actual taxi time and unimpeded taxi time at average and peak times.24 One of the most important part is Customers Satisfaction, defined as overall level of all kinds of passengers, and their satisfaction as measured by survey responses.25 It is necessary to mention other parts of service quality as: Baggage delivery time, security clearing time, border control clearing time and check-in to Gate time.26 These all components form one meaning, the meaning of quality of the service, which is offered by an airport and keeping

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under control every part of it equals to the high level of service quality.

22

WYMAN, Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.22) (retrieved: 15-07-14)

23

WYMAN, Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.23) (retrieved: 15-07-14)

24

WYMAN Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.23) (retrieved: 15-07-14)

25

WYMAN Oliver (2012) Airport Council International, Guide to Airport Performance Measures (p.24) (retrieved: 15-07-14)

26

WYMAN Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.24-27) (retrieved: 15-07-14)

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Environmental Issues The biggest aspect which can cause numerous of financial losses, as well as loss of reputation, due to canceling flights and so on is an Environmental aspect. To minimize the environmental impacts of airport`s operations, environmental indicators should be considered. The indicators are covering a wide range of different subjects, and include emissions, minimization of energy and water usage, noise, environmentally sound building practices, usage of renewable sources, as well as other related areas.

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There are some environmental indicators as: Carbon footprint, waste recycling, waste reducing percentage; amount renewable energy purchased by the airport, as a percentage of the whole energy which is consumed by the airport,28 Utilities/ Energy usage per square meter of terminal, water consumption per Passenger, meaning water consumption it the terminal complex divided by the whole number of passengers, measured over the course of a year, and this analysis is leading to the sources of water consumption.29

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xiii. List of abbreviations WWII – World War II LDN – London UK – United Kingdom CEO – Chief Executive Officer BA – British Airways BAA – British Aviation Authority LHR – London Heathrow Airport STN – London Stansted Airport LGW – London Gatwick Airport DFT – Department for Transport UK MPs – Members of Parliament p.a. – per annum (yearly) SE – South East BATA - British Air Transport Association WHO – World Health Organization

27

WYMAN Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p. 45) (retrieved: 15-07-14)

28

WYMAN Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.48) (retrieved: 15-07-14)

29

WYMAN Oliver (2012): Airport Council International, Guide to Airport Performance Measures (p.49) (retrieved: 15-07-14)

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Inhaltsverzeichnis xii. Abstract .............................................................................................................................. 1 xiii. List of abbreviations ........................................................................................................... 9 Introduction ........................................................................................................................................ 12

I.

10

1.

The Big Smoke ............................................................................................................... 13

2.

Airport Economics........................................................................................................... 14

3.

The rise of low-cost airlines............................................................................................. 14

4.

Airport Ownership ........................................................................................................... 15 Main Part ............................................................................................................................................ 16

II. 1.

Analysis .......................................................................................................................... 16

1.1 Meet operational requirements of Economy/Business ...................................................... 17 1.2 International Rivalry/International Competition ................................................................. 17 1.3 Cope with constant growth in demand: “Heathrow Hassle” .............................................. 20 1.4 Enhance Product/Service offered.................................................................................... 22 1.4.1

Thesis Capacity Enlargement Argumentation Cycle ................................................ 22

1.4.1.1 Expanding via establishing a new airport ................................................................... 22 1.4.1.2

LHR Third Runway Expansion & Terminal Expansion .......................................... 24

1.4.1.3

LHR Terminal Expansion ..................................................................................... 25

1.4.1.4

Expand LHR by adding four runways ................................................................... 26

1.4.1.5

Runway expansion: STN ...................................................................................... 27

1.4.1.6

Runway expansion: LHR & STN........................................................................... 27

1.4.1.7

Runway expansion: LGW ..................................................................................... 27

1.4.1.8

Runway expansion: LGW & LHR.......................................................................... 27

1.4.2

Anti-Thesis Capacity Enlargement Argumentation cycle .......................................... 28

1.4.2.1

Switch from Runway Alternation to “Mixed-Mode” ................................................ 28

1.4.2.2

Increase competition between airports: Break up BAA monopoly ......................... 29

1.4.2.3

Restructure BAA investment priorities .................................................................. 29

1.4.2.4 Increase competition between airports: Price differentials between leisure and business travelers .................................................................................................................. 30

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1.4.2.5 Restructure regulation for aircraft take-off and landing rights (slots) [LHR]: higher fees and better allocation ....................................................................................................... 30 1.4.2.6

Drive value of slots to zero ................................................................................... 31

1.4.2.7 Adjust pricing regulation for aircraft take-off and landing rights (slots): Increase no. of landing slots ....................................................................................................................... 32 1.4.2.8

Outperform thriftiness of economic management ................................................. 32

1.4.2.9

Trust market prices............................................................................................... 32

1.4.2.10

Introduce high-speed rail network in-between airports.......................................... 32

1.4.2.11

Technological spillover ......................................................................................... 33

1.4.2.12 33

Serve new emerging-market destinations instead of point-to-point short-haul flights

1.4.2.13

Price environmental costs into tickets to dampen demand ................................... 33

1.4.2.14 Open Skies Agreement ............................................................................................ 35 1.4.2.15 2.

Inclusion of airlines in the European emissions-trading scheme 2012 .................. 35

Discussion/Criticism ........................................................................................................ 35

III. Conclusion ...................................................................................................................... 38

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Abbildung 1: London Airport Structure ........................................................................................................... 13 Abbildung 2: Airport Economics ...................................................................................................................... 14 Abbildung 3: Capacity Expansion & Economic Sustainability .......................................................................... 16 Abbildung 4: Major Global Airports................................................................................................................. 17 Abbildung 5: Maximum Altitude ..................................................................................................................... 19 Abbildung 6: Terminal Velocity ....................................................................................................................... 19 Abbildung 7: LHR Terminal .............................................................................................................................. 21 Abbildung 8: Heathslow .................................................................................................................................. 21 Abbildung 9: Headwinds.................................................................................................................................. 22 Abbildung 10: Selected airport proposals ....................................................................................................... 24 Abbildung 11: LEUNING Terminal Expansion .................................................................................................. 26 Abbildung 12: LHR Expansion Proposals ......................................................................................................... 26 Abbildung 13: LHR Terminal 5 ......................................................................................................................... 27 Abbildung 14: Charges at selected airports..................................................................................................... 31 Abbildung 15: Your 4:45am Alarm Call............................................................................................................ 36 Abbildung 16: Your 5:00am alarm call ............................................................................................................ 36 Abbildung 17: Your 5:15am alarm call ............................................................................................................ 37 Abbildung 18: Actions of Environmental Campaigners ................................................................................... 37

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I.

LHR Capacity Enlargement and Economic Sustainability

Introduction

Historical roots of the former Royal Air Force military base, now the world’s busiest international airport, date back to the beginning of the 20th century. It was not after 1946, that the ownership of the London Heathrow Airport has been transferred to the Air Ministry, renaming it as “London Airport”. Shortly after, during the period 1955-1986, the name “Heathrow”, named after an ancient village of the site “Heath Row”, then came into existence. However, structural changes did not only occur in the past but also do occur at present: the issue of capacity expansion, due to the maximum utilization of 98% of the airports two runways linked with a continuously growing demand for passenger travel, positions the airport in a painstaking situation. The airport must economically sustain, and most and foremost improve its operational business functioning. The issue of Capacity Expansion & Economic Sustainability is thus an ongoing debate at LHR which needs to be resolved as soon as possible in order to meet requirements for sustaining all business requirements.

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1. The Big Smoke A world cultural capital, London, the capital city of England and the United Kingdom, is a leading global city with strengths in the arts, education, entertainment, fashion, healthcare, media, professional services, research and development, tourism and transport, as well as commerce and especially finance, as it is one of the world’s leading financial centres and has the world’s largest city airport system measured by passenger traffic. In total, the world cultural capital measures a five airports.30 Abbildung 1: London Airport Structure

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However, airports serving London have become increasingly overloaded. Heathrow and Gatwick, grossly congested, are forecast to get much worse as demand for air travel grows. The key problem is capacity, over the past 20 years, the no. of passengers handled by British airports has trebled. Freight movements have doubled. A government green paper “The Future of Aviation”, issued on December 12th, 2000 predicts that if demand is currently unrestrained, it would likely double again by 2015. But where will these planes land? Demand concentrates heavily in south-east London. Especially at London Heathrow Airport, LHR, Europe’s main gateway on the transatlantic air route31 and busiest international airport as it handles nearly half of the passenger traffic between North America and Europe. 3233

30

londonnet.co.uk [online] London Airports (retrieved: 23-05-2014)

31

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

32

TheEconomist.com [online] Heathrow Hell, Britain’s Awful Airports, August 9 th 2007 (retrieved: 24-05-14)

33

TheEconomist.com [online] Aviation, How to fix Heathrow, April 27th 2008 (retrieved: 25-05-14)

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2. Airport Economics In order to understand the importance of a major airport as a global hub and thus playing a key role in a given economy, one must understand the concept of Airport Economics. Airports are a classic case of network economics [network effect]: the more people go to them, the more people want to go to them, because of the number of connections that can then be offered.34

Increased Demand

Increased Network Route

Airport Economics

14 Higher Value

Increased Demand

Abbildung 2: Airport Economics

3. The rise of low-cost airlines Hub airports may become less dominant. The rise of low-cost airlines, which usually operate out of cheaper airports, push down the short-haul “full service” model. Cheap upstarts are growing faster then European and American legacy carriers that rule the hubs. For an example, in 2012, EasyJet, Ryanair and Flybe, three low cost airlines, accounted for 35% of all people beginning or ending journeys in Britain up from 10% in 2000 35 , the period in which the growth of budget operators, e.g. EasyJet, Ryanair and Virgin Express also played a significant role in commercial air traffic, as passenger numbers grew in total by 50% p.a. 34

TheEconomist.com [online] What was that you said? August 14th 2013 (retrieved: 26-05-14)

35

TheEconomist.com [online] Britain’s airports, Still up in the air, December 21st 2013 (retrieved: 27-05-14)

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during the period 1997-2000.36 New aeroplanes like the Boeing 787 and Airbus A350 fly fewer passengers farther, potentially bypassing hubs. Cheap airlines may use them to break into long-haul business. In 2014 for an example, Norwegian Air Schuttle, a low cost carrier, will fly from Gatwick to New York for the first time (787 route; . The liberalization of the lowcost European aviation market could repeat globally says Gatwick CEO Stewart WINGATE in 2013.37 4. Airport Ownership

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Airports in the demand acute area (south-east London), literarily competing against each other in south-east London, i.e. STN, LGW and LHR, are all owned by the British Aviation Authority (BAA), a statutory corporation which oversees and regulates all aspects of civil aviation in the UK, which was bought by a Spanish firm, , in 2006 for £10.1 billion ($18.8 billion).38 When London’s airports were privatized two decades ago in a bundle, and the Civil Aviation Authority (CAA) was given responsibility for capping landing fees and other charges with the goal to prevent BAA from abusing its market power and ensure that investment flowed from one airport to the next, i.e. obliged by law to act in the interests of passengers and airlines by restraining BAA from extracting monopoly rents – it must give BAA an incentive to run its airports efficiently and invest in improved facilities. The result, alas, was to increase market dominance by shielding LHR from competition if airports were to be owned by separate business men. Therefore, as of the large stake in ownership of airports in London, BAA holds a monopoly position within the British aviation industry, especially before it had sold or was forced to sell LGW for promoting higher competition.39 In 2009, the Competition Commission forced BAA to sell off Gatwick and on February 1st 2012, BAA lost an appeal against having to offload Stansted too.40 Gatwick is now owned by a private-equity firm.41

36

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

37

TheEconomist.com [online] Britain’s airports, Still up in the air, December 21 st 2013 (retrieved: 27-05-14)

38

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

39

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

40

TheEconomist.com [online] Locating airports, Hub caps February 4th 2012 (retrieved: 25-05-14)

41

TheEconomist.com London airports, Go west December 21st 2013, (retrieved: 27-05-14)

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II. Main Part 1. Analysis

Capacity Expansion & Economic Sustainability

16

Meet operational Requirements of Business/ Economy

Maintain Status Quo: International Rivalry

Abbildung 3: Capacity Expansion & Economic Sustainability

Cope With Constant Growth in Demand

Enhance Product/ Service offered

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1.1 Meet operational requirements of Economy/Business The transport department reckons 320m passengers a year will want to fly out of Britain in 2030 and 480m by 2050 compared with 220m today [2013].42 Oxford Economics, a forecasting consultancy commissioned by BAA, predicts that by 2021 British GDP will drop by £8.5 billion per year due to an over-stretched Heathrow lagging behind global aviation growth.The report sees Britain's economy losing 141,400 jobs.43 In total LHR created 68,000 jobs (2013).44 1.2 International Rivalry/International Competition Hubs are popular with airlines as they make airline operations more efficient: hubs have more flights, thus favoured by airlines. Local users also like hubs because of the wider range of destinations: pooling passengers from many different points of departure makes it possible for airlines to offer flights to places that would otherwise be uneconomic. Heathrow is one of Europe’s main hubs, together with Frankfurt, Charles de Gaulle and Schiphol (see chart).45

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Abbildung 4: Major Global Airports

42

TheEconomist.com [online] Expanding London’s airports, Go west, July 20th 2013 (retrieved: 27-05-14)

43

TheEconomist.com [online] Heathrow, The runway that won’t go away March 9th 2012 (retrieved: 26-05-14]

44

TheEconomist.com [online] What was that you said? August 14th 2013 (retrieved: 26-05-14)

45

TheEconomist.com [online] Daily chart, Hubs with hubbub March 30th 2013 (retrieved: 27-05-14)

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However, when viewing on London’s five airports hat Heathrow46 with two runways, Gatwick the world’s busiest single runway airport47, Stansted also a single runway airport48, Luton also an single runway airport49 and London City also with a single runway trip50have a limited amount of runways with only six runways between them in comparison to other rivals51, e.g. to Paris’s Charles de Gaulle Airport, which has four runways, i.e. two doublets (For each of the doublets, a runway is specialized for takeoffs and the other for landings, which particularly enables the limitation of noise caused by traffic (adapted to large aircraft: Airbus A380)) whose physical layout allows independent use52 or Amsterdam’s Schiphol which has six runways53. Such rival airports in continental Europe thus already have the capacity and room to grow that e.g. LHR will always lack. 54 Nevertheless, the government says that it wants to expand LHR so it can compete as a hub with rivals on the continent (see table).55 In 2007 the total passenger numbers in m compared to air transport movement was not proportional, meaning that with fewer flight movements a greater no. of individuals have been transported in comparison to other global hubs or simply because of a lack of freight movement flights. (Air Transport Movement [ATM] is the description of an aircraft in flight. That is, one take off + one landing). Looking at destinations served, Frankfurt, for an example serves 245 destinations whereas LHR only serves 160, according to OAG, an aviation consultancy.56

18

46

Airport-Technology.com [online] London Heathrow Airport Expansions (LHA/EGLL), United Kingdom, Runway details and new infrared camera systems at the huge UK airport [online] (retrieved: 25-05-14) 47

Flightsim.com [online] Gatwick Runways 27-10-11 posted by: alandc10 (accessed: 25-05-14)

48

Stanstedairport.com [online] Stansted Facts and Figures, Facilities (retrieved: 25-05-14)

49

Exclusiveairports.com [London Luton Airport], Airport Facts (retrieved: 25-05-14)

50

Airport-technology.com [online] London City Airport (LCY), London, United Kingdom (25-05-14)

51

TheEconomist.com [online] The problems stack up, December 7th 2000 (accessed: 23-05-14)

52

aeroportsdeparis.fr [online] Paris-Charles de Gaulle, The Runways (retrieved: 23-05-2014)

53

amsterdamairport.info [online] Amsterdam Airport (retrieved: 23-05-2014)

54

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27 th 2008 (retrieved: 24-05-14)

55

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

56

TheEconomist.com [online] Locating airports, Hub caps February 4th 2012 (retrieved: 25-05-14)

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Abbildung 5: Maximum Altitude

19

Abbildung 6: Terminal Velocity

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LHR Capacity Enlargement and Economic Sustainability

1.3 Cope with constant growth in demand: “Heathrow Hassle” The 62-year old LHR airport consistently ranks near the bottom in surveys of quality service and passenger satisfaction [2007? Date: N/A] (see table)5758. The airports management explanation were reasons of the airports age and ongoing heavy traffic. However, the reason why LHR ranks so low in customer polls is partly due to the fact that the airport is initially meant to accommodate about 45m individuals a year596061, yet however in squeezes more than double of individuals as foreseen on top through its gates. In 2007, e.g. the airport pushed 68m (+51.11%) individuals instead of 45m individuals. Thus serving more air passengers through its gates than the four other London airports combined.62At this point, it is also crucial to mention that at LHR, with a total of 480,000 flights a year (2007) an third of departing flights are delayed (more than 15 minutes)6364 (see table) and thousands of bags are lost each day.65 The reason for this is due to the fact that a plane takes off or lands every 45 seconds, meaning that even minor events, such as a thunderstorm or high winds can cause delays and cancelled flights. Half of all arriving aircraft are stacked in a holding pattern before being allowed to land.66 Ken LIVINGSTONE, former London mayor, accused the airport in 2007 of keeping individuals “as prisoner” in its “ghastly shopping mall”. 67

20

57

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

58

TheEconomist.com [online] Heathrow Hell, Britain’s Awful Airports, August 9 th 2007 (retrieved 24-05-14)

59

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

60

TheEconomist.com [online] British Airports, Hell on wings, April 9th, 2007 (retrieved: 23-05-14)

61

TheEconomist.com [online] Heathrow, Turbulence, November 22nd 2007 (retrieved: 24-05-14)

62

TheEconomist.com [online] Locating airports, Hub caps February 4th 2012 (retrieved: 25-05-14)

63

TheEconomist.com [online] Heathrow, Turbulence, November 22nd 2007 (retrieved: 24-05-14)

64

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

65

TheEconomist.com [online] British Airports, Hell on wings, April 9th, 2007 (retrieved: 23-05-14)

66

TheEconomist.com [online] Heathrow, Turbulence, November 22nd 2007 (retrieved: 24-05-14)

67

TheEconomist.com [online] Heathrow Hell, Britain’s Awful Airports, August 9 th 2007 (retrieved 24-05-14)

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Abbildung 7: LHR Terminal

21

Abbildung 8: Heathslow

LHR Capacity Enlargement and Economic Sustainability

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LHR Capacity Enlargement and Economic Sustainability

Abbildung 9: Headwinds

Comparing LHR as London’s prime airport to Gatwick, the 11th busiest international airport, one must note that LHR relies on flights proceeding to and from the same point, whereas Gatwick has less frequent flights which are typically shorter haul, but serves almost as many destinations as LHR.68

22

1.4 Enhance Product/Service offered 1.4.1 Thesis Capacity Enlargement Argumentation Cycle 1.4.1.1 Expanding via establishing a new airport The capacity problem can be solved by a new airport to serve the south-east. Possible sites are e.g. Maplin Sands, Cublington, Yardley Close and Northolt.69 There was also an option of a new Airport at Cliffe in Kent. The proposals has however been binned as of too many birds that might get into the engines.70 Another option in the early 1970s, also dismissed, would have been on reclaimed sandbanks in the Thames estuary to supplement and then supplant LHR. The scheme foundered for several reasons [1] the economic crisis that overtook the country, ruling out any big new public investment programs and [2] safety concerns about seabirds being sucked into jet engines and the before high-speed rail 28-mile distance from central London was deemed too great. However, according to a 2003 White Paper, Bluebase, an architectural firm, specializing in large infrastructure projects, made a new proposal for an airport in estuary with two big runways and two smaller ones for short-haul aircraft, the airport were able to handle more than 130m passengers a year, about twice as many has LHR. Connected to both seaports and running 24 hours a day, its flexibility would have far exceeded LHR. Even though the plans received some initial interest from the Star alliance (biggest global airline alliance which includes Lufthansa, United and Singapore Airlines) the DFT showed no interest carrying out a proper study, according 68

TheEconomist.com [online] Locating airports, Hub caps February 4th 2012 (retrieved: 25-05-14)

69

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

70

The Economist.com [online] No stopping at Heathrow, August 14th 2003 (retrieved: 23-05-14)

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to Mark WILLINGALE, a senior partner at Bluebase.71 Another proposal is a four runway airport north-east of London on the Isle of Grain. But for an example a Thames Estuary Airport “BORIS ISLAND) named after London’s conservative major Boris JOHNSON would take 25 years to develop.72 Both of the hubs in the latter could cost between £70 billion ($106 billion) and £80 billion.73 On the other, there have been airport proposals since 1971.74 But Heathrow’s location has shaped the economy of the capital [London] and the M475 corridor. Moving Britain’s main airport would thus cause great disruption. Heathrow would have to close to make its replacement viable76. Its managers reckon that it employs around 110,000 people, including the caterers and hotels on its periphery77. Countless other businesses in west London and up the Thames valley have set up there to be close to Heathrow. If this were China, whose economy is growing and changing swiftly, that might make sense. But Heathrow’s location has shaped the economy of the capital [London] and the M4 corridor.78 Moving Britain’s main airport would thus cause great disruption. Heathrow would have to close to make its replacement viable79. Its managers reckon that it employs around 110,000 people, including the caterers and hotels on its periphery80. Countless other businesses in west London and up the Thames valley have set up there to be close to Heathrow.

23

71

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

72

TheEconomist.com [online] Heathrow, The runway that won’t go away March 9 th 2012 (retrieved: 26-05-14]

73

TheEconomist.com [online] Expanding London’s airports, Go west, July 20th 2013 (retrieved: 27-05-14)

74

TheEconomist.com [online] Our solution to expanding Heathrow April 13th 2013 (retrieved: 26-05-14)

75

The M4 corridor is an area in the United Kingdom adjacent to the M4 motorway, which runs from London to South Wales. It is a major high-technology hub. Important cities and towns linked by the M4 include (from east to west) London,Slough,Bracknell,Maidenhead,Reading, Newbury, Swindon, Bath, Bristol, Newport, Cardiff, and Swansea. The area is also served by the Great Western Main Line, including the South Wales Main Line, and London Heathrow Airport. Technology companies with major operations located in the area include Citrix Systems, Dell, Huawei, Lexmark, LG, Novell, Nvidia, Panasonic, SAP and Symantec. 76 Durchführbar/machbar 77 Umgebung 78 The M4 corridor is an area in the United Kingdom adjacent to the M4 motorway, which runs from London to South Wales. It is a major high-technology hub. Important cities and towns linked by the M4 include (from east to west) London, Slough, Bracknell,Maidenhead, Reading, Newbury, Swindon, Bath, Bristol, Newport, Cardiff, and Swansea. The area is also served by the Great Western Main Line, including the South Wales Main Line, and London Heathrow Airport. Technology companies with major operations located in the area include Citrix Systems, Dell, Huawei, Lexmark, LG, Novell, Nvidia, Panasonic, SAP and Symantec. 79 Durchführbar/machbar 80 Umgebung

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LHR Capacity Enlargement and Economic Sustainability

Abbildung 10: Selected airport proposals

24

1.4.1.2

LHR Third Runway Expansion & Terminal Expansion

As passenger numbers double every decade, the result is overcrowded terminals and increasing flight delays. LHR is so congested, that a third of its flights are delayed (chronic lack of punctuality). A third runway to relieve air passenger travel distress is thus needed.81 According to the British government, Heathrow must expand if Britain is to have the competitive hub airport it needs – Heathrow is thus in danger of losing its status as one of the world’s busiest hubs to rivals with wider capacity, e.g. Frankfurt, Amsterdam, Paris. The economy benefits from the hub because the more transit passengers (antonym: terminal passengers) there are – they have grown from 9% of the total in 1992 to 35% in 2004 – the bigger the route network and the more valuable the airport to Britons (thus help to sustain extensive route network).82 The BAA proposed three runways. BAA favors however southwest or north-west and proposes a revised northern runway, similar to the plan the government already brought up by the coalition government. Here, the airport reckoned that it can add a third runway for between £14 billion and £18 billion by 2025-29, depending on the option – five to ten years before a new hub could open. 83 The proposed third runway is to be shoehorned in between two main roads to London, the A4 and the M4.84According to a government consultation document of 2003, net benefits of a 2,000 metre (2,187 yards) runway at LHR would be nearly £8 billion ($12.8 billion) by 2030. According to BAA, the 81

The Economist.com [online] No stopping at Heathrow, August 14th 2003 (retrieved: 23-05-14)

82

TheEconomist.com [online] Aviation, How to fix Heathrow, April 27th 2008 (retrieved: 25-05-14)

83

TheEconomist.com [online] Expanding London’s airports, Go west, July 20th 2013 (retrieved: 27-05-14)

84

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27 th 2008 (retrieved: 24-05-14)

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runway would be used only by single-aisle aircraft (existing ones are 4,000 meters) and would lift the annual total flights from 480,000 to 720,000 (in 2009, however, the government approved only an increase to 605,000 p.a.).8586 However, the M25, London’s crucial orbital motorway would have to be built over. Some 1,500 houses would go. 87

1.4.1.3

25

LHR Terminal Expansion

In order to cope with a overcrowding and delays at check-in, LHR enlarged its terminal scale and introduced a new baggage-handling system88. A fifth terminal, covering 260 hectares (same as Hyde Park), shifting 6.5m cubic metres of earth and building a 13.5km underneath the working runways, should now have room for 30m more air passengers, from a total no. of air passengers of 67 million in 2004. The estimated price was based on £ 4.2 billion financed through bonds. The man in charge: Tony DOUGLAS, planned opening of Terminal 5 at 0400 on the 30th of March, 2008.89 However, when Terminal 5 opened on March 27th, 2008 at the cost of £4.3 billion ($8.5 billion)90 around 430 flights were cancelled and some 20,000 bags were separated from their owners.91 Terminal 5 at LHR was however only approved subject to two conditions (1) cap on flight numbers and (2) stricter controls of noise levels according to the former planning inspector, Roy VANDERMEER. Flights were to be restricted to a total of 480,000 a year. When Terminal 4 was given the go-ahead in 1978, the development was approved on the condition that it were the last big expansion at LHR, according to the former planning inspector Ian GLIDEWELL. A recommendation accepted by the then government said that flights should be limited to 250,000 a year. The year 2000, e.g., measured a total of 460,000 flights.92 Two decades ago, for an example, a new Terminal at LHR, was cancelled by the former inspector Graham EYRE as of increased night flights.93 However, a sixth terminal has been approved by the British government on January 15th, 2009.94

85

TheEconomist.com [online] Expanding Heathrow Airport, Clearer skies? December 10 th 2009 (retrieved:25-05-14)

86

TheEconomist.com [online] Airport expansion, Gordon’s Heathrow Gamble January 15th 2009 (retrieved: 25-05-14)

87

TheEconomist.com London airports, Go west December 21st 2013, (retrieved: 27-05-14)

88

TheEconomist.com [online] Heathrow, Turbulence, November 22nd 2007 (retrieved: 24-05-14)

89

The Economist.com [online] Blue skies thinking, Aril 18th 2005 (retrieved: 23-05-14)

90

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27 th 2008 (retrieved: 24-05-14)

91

The Economist.com [online] Terminal 5, Still a mess, April 3rd, 2008 (retrieved: 24-05-14)

92

The Econpmist.com [online] Terminal 5, Call that a decision?, November 22nd 2001 (retrieved: 23-05-14)

93

The Econpmist.com [online] Terminal 5, Call that a decision?, November 22nd 2001 (retrieved: 23-05-14)

94

TheEconomist.com [online] Airport expansion, Gordon’s Heathrow Gamble January 15th 2009 (retrieved: 25-05-14)

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1.4.1.4

LHR Capacity Enlargement and Economic Sustainability

Expand LHR by adding four runways

A proposal by Tim Leunig, an economist is to place all four runways directly west of the current pair, thus expanding Heathrow westwards by adding four runways.9596

26

Abbildung 11: LEUNING Terminal Expansion

Abbildung 12: LHR Expansion Proposals

95

TheEconomist.com [online] Our solution to expanding Heathrow April 13th 2013 (retrieved: 26-05-14)

96

TheEconomist.com [online] Expanding London’s airports, Go west, July 20th 2013 (retrieved: 27-05-14)

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1.4.1.5

LHR Capacity Enlargement and Economic Sustainability

Runway expansion: STN

An easy short-term option would be to build a new runway (to the north-east) (a second runway) at STN to suck in leisure traffic97 but in order to be a viable alternative to Heathrow and Gatwick, it would need better transport links to central London.98

1.4.1.6

Runway expansion: LHR & STN

Instead of a building only a third runway expansion at LHR, a second runway at STN additionally, would also be viable. The benefits here would be more than £ 12 billion by 2030, according to a government consultation paper of 2003.99 In a white paper published in 2003 on air transport by the government, two new runways in the south-east were advocated where the government however committed itself only to a second runway at Stansted. A 1979 planning agreement prevents building a second runway at Gatwick before 2019. The government made also its preference for a third runway at LHR, but feared that it would breach EU pollution rules.100 1.4.1.7

27

Runway expansion: LGW

LGW, would have a good reason to build a second runway to the south after 2019 (when an old planning agreement expires)101 with the aim of attracting one of the big airline alliances and thus becoming a hub itself. 1.4.1.8

Runway expansion: LGW & LHR

Expanding Gatwick airport would indicate 200 houses to be lost. It would promote competition thus having a two-runway Heathrow and a two-runway Gatwick. But that would be a risk. Hubs might become less important—but then again they might not. Gatwick might never really challenge Heathrow; and a constrained Heathrow could lose ground against other European airports.102 Abbildung 13: LHR Terminal 5

97

TheEconomist.com [online] Aviation, How to fix Heathrow, April 27th 2008 (retrieved: 25-05-14)

98

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

99

The Economist.com [online] No stopping at Heathrow, August 14th 2003 (retrieved: 23-05-14)

100

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

101

TheEconomist.com [online] What was that you said? August 14th 2013 (retrieved: 26-05-14)

102

TheEconomist.com London airports, Go west December 21st 2013, (retrieved: 27-05-14)

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1.4.2 Anti-Thesis Capacity Enlargement Argumentation cycle 1.4.2.1

28

Switch from Runway Alternation to “Mixed-Mode”

BAA also argued that it wants the government to let it use its existing runways more intensively, that is in “mixed mode” by 2015, raising capacity, it reckons by 10-15%. This means ending an agreement on runway alternation, which gives a six-hour break every day to 2m people affected by aircraft noise.103 Hence, runway alternation means that that at one moment one runway is used for landings and the other for take-offs with roles thus switching at a certain period of time.104 As “mixed-mode” would have seen both LHR runways used for inbound and outbound flights, i.e. landings and take offs on the same runway. The government however did not approve. Had “mixed-mode” runway use been established at LHR, its present daily aircraft movement total of 1,315 would have potentially increased to 1,479.105 Economic support for a bigger LHR was supplied by Oxford Economic Forecasting (OEF), a consultancy, in a report in October 2006. OEF’s analysis estimated that using LHR two existing runways in mixed mode would raise GDP by £2.5 billion a year by 2015. A third runway would be worth £7 billion a year by 2030. If all runway proposals were implemented in the White Paper, the figure would rise to £13 billion a year by 2030. Moreover, without increase in capacity costs to airlines and passengers of increasing congestion would reach £20 billion by 2030. By comparison, the annual cost of greenhouse-gas emissions from all the extra flying was put at a mere £700m.

103

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

104

Hounslow.gov.uk [online] Mixed mode – no more quite periods, What is runway alternation (retrieved: 24-05-14)

Airport-int.com [online] No Mixed-Mode for Heathrow Airport Runways, posted by: Airport Internationals’ UK Correspondent on 0809-10 (retrieved: 24-05-14) 105

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1.4.2.2

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LHR Capacity Enlargement and Economic Sustainability

Increase competition between airports: Break up BAA monopoly

As of its monopoly situation, BAA was often threatened to cut its profits or either to break up: the Civil Aviation Authority (CAA) oversees airport fees and the Office of Fair Trading (OFT) (asking Competition Commission) investigates its market dominance106. The OFT reckons that as of its monopoly, it has shielded it form competition that could otherwise have pushed supply and demand into equilibrium (see Adam Smith: Invisible Hand of God). Competition would have improved service, cut fees and expand capacity, all of points of contention with LHR customers. Hence, if the airports were separately owned and were to compete against each other for business, investments in new runways and terminals or even better transport links were more likely.107 On August 9th 2007, the Competition Commission considered breaking up BAA. Monopolist’s defenders made two arguments for keeping the status quo [1] two of London’s three main airports are operating at full capacity (STN yet to seize up) and separate owners would have little reason to compete for business. However, genuine rivals are remarkably adept at finding capacity where none is and at meeting demand in new ways. Prices and standards are often set at the margin and the movement of even a few flights between airports produce competitive pressure. As for the other argument [2] separate owners would be slower than BAA in expanding capacity as BAA controls all three airports and has languidly added new runways and terminals where they were easiest to build on the assumption that individuals have no choice but to use them. 108 1.4.2.3

Restructure BAA investment priorities

Airlines reckon that because BAA owns all major airports in London, it is holding back expansion at popular LHR in attempt to push customers into using existing capacity at lessfavoured places e.g. STN. Airlines also argue, that it is that instead of using operating cash flows for enhancing waiting areas or pressing permission to add runways, investment priorities seem to be intent on building shopping malls. The reason why the airport management relies heavily on inflowing cash flows from service areas within the airport itself, is because the fees it charges for aircraft landing and take-off rights (slots) are measured to low. A study in 2006 by TRL, a consulting group, ranked it 19 th out of 38 airports. Nevertheless on the other hand, fees for aircraft landing and take-off rights (slots) are partly controlled by the Civil Aviation Authority, controlling fees respectively LHR and LGW. A decision to raise prices for slots is thus conditional. Therefore, BAA argues that the structure of investment priorities is strongly linked to the fact that it is not allowed to charge higher fees for slots. For an example, BAA asked for a real increase of 12.3% a year from 2008 at LHR. If CAA does not approve the inquiry of slot price increase, and would limit it to say 5.8%, money for investing into better customer services would not be there. During the periods 2008-2013, however, the CAA is deciding the maximum landing fees BAA can 106

TheEconomist.com [online] Heathrow Hell, Britain’s Awful Airports, August 9th 2007 (retrieved 24-05-14)

107

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

108

TheEconomist.com [online] British Airports, Hell on wings, April 9th, 2007 (retrieved: 23-05-14)

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charge at LHR and LGW109. Here the new five year price caps increased to £12.8 in 2009 and until 2013, annual rise was limited to the increase in the retail-price index plus 7.5 percentage points.110 But in response to this, airlines had a clear incentive to batter BAA for misdirect investment, profiteering and managing airports badly, as of the sudden increase in traditional low slot prices111. 1.4.2.4 Increase competition between airports: Price differentials between leisure and business travelers According to an analysis in 2006, undertaken by Oxford Economic Forecasting, a consultancy commissioned by BAA112, suggests that central to air travel’ contribution to the economy is the value of a business journey compared with a leisure one: £400 for business, £120. OEF acknowledges that business travel is only about a third of the total from LHR. If however some leisure travelers were to fly from other airports, capacity would be freed for additional, more valuable business flights [can you ensure demand?]. On the assumption that business travelers are less sensitive to price than holiday makers, one way would be to increase price differential between LHR and other London airports.113

30

1.4.2.5 Restructure regulation for aircraft take-off and landing rights (slots) [LHR]: higher fees and better allocation Airport congestion has multiplied the value of slots, thus becoming the “currency” in aviation business. On a historic basis, slots have been held by incumbents. Scarcity value has allowed privileged airlines, e.g. BA (which owns about 40% of LHR slots where one values up to £30m ($48m) apiece)114 - slots at Gatwick are for an example far cheaper as 25 were sold for £20m in May 2013115 - to make huge sums out of these slots: surplus slots (excess supply) are traded behind the curtains for millions, e.g. Continental which has paid £100m for four slots at LHR.116 LHR however, operates an “single till” regime, where profits earned from all the airport’s businesses, including retailing, is used for calculating e.g. landing charges (i.e. allowing profits from retailing to subsidise airside operations, to stuff as many

109 110

TheEconomist.com [online] Crowded airports, Landing flap, April 4 th 2007 (retrieved: 23-05-14) The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

111

TheEconomist.com [online] Heathrow Hell, Britain’s Awful Airports, August 9th 2007 (retrieved 24-05-14)

112

TheEconomist.com [online] Heathrow, The runway that won’t go away March 9th 2012 (retrieved: 26-05-14]

113

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

114

TheEconomist.com [online] Heathrow’s future, The right side of the argument, November 6th 2008 (retrieved: 25-05-14)

115

TheEconomist.com [online] Britain’s airports, Still up in the air, December 21st 2013 (retrieved: 27-05-14)

116

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

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LHR Capacity Enlargement and Economic Sustainability

passengers into its airports as it can) – resulting in planes being actually paid to land at LHR117, indicating that charges are not high by international standards.

31

Abbildung 14: Charges at selected airports

The reason for low prices of landing slots is the chronic overcrowding at LHR and also partly the inefficient allocation of landing slots, as fees are capped and landing slots are generally inherited prompting airlines to hang onto to them even at the cost of scheduling unprofitable flights to in order to retain. If LHR were to charge higher fees, it would drive least profitable short-haul flights to cheaper airports, freeing capacity for long-haul flights. Giving airlines a clear title to their landing slots (illegal transfers occur frequently) would allow a market to emerge settling into the clearance point. This in turn, would signal airlines to value capacity and would allow airport owners to structure investment priorities more efficient. Another effect of charging higher fees would be the fact that it would drive transit passengers to hubs in continental Europe resulting in a narrower route network, with the least-useful routes going first. Although transit passengers help BA and BAA, they do little for Britain’s economy.118

1.4.2.6

Drive value of slots to zero

However, if for an example market prices in air travel were raised and holiday traffic would go mainly to other British airports such as Stansted, while transfer passengers were more likely to use nearby hubs in Europe, the effect would be a sharp reduction, perhaps to zero 117 118

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14) TheEconomist.com [online] Aviation, How to fix Heathrow, April 27th 2008 (retrieved: 25-05-14)

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LHR Capacity Enlargement and Economic Sustainability

in the value of slots. This would also illustrate a great impact on demand, restructuring air passenger travel at LHR and thus no capacity enlargement would be needed as here airlines with a large quantity of slots, especially BA would howl, or Continental. LHR network would shrink and would annoy airlines based at LHR and passengers but would please business travelers as of higher efficiency.119

1.4.2.7 Adjust pricing regulation for aircraft take-off and landing rights (slots): Increase no. of landing slots BATA argued that the number of passengers wanting to land at LHR and at LGW are prevented by the shortage of landing slots, measuring 10 million individuals. BATA also predicted demand to grow to 18m by 2015 and nearly 100m by 2030 120. Also in 2000, DFT air passenger forecast predicted an increase to 400 million air passenger traffic by 2020 from 160 million p.a. in 1998121.

1.4.2.8

32

Outperform thriftiness of economic management

A government’s consultation document of the year of 2000 suggests to make better use of airport capacity, where a proper market should be created and viable slots should be auctioned.122

1.4.2.9

Trust market prices

If a third runway were implemented at LHR for an example, it would be full again within a decade of the opening. Also air travel is likely to get more expensive as of big increases in the cost of jet fuel.123 A huge rise in carbon price, to to £200 ($324) a tone by 2050 (from around £13 in 2009) would make tickets pricier. Governments would limit capacity at airports.124 1.4.2.10

Introduce high-speed rail network in-between airports

119

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

120

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

theguardian.com [online] Heathrow third runway – timeline of events, published by Jessica Aldred on: 06-09-12 (retrieved: 22-052014) 121

122

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

123

The Economist.com [online] Heathrow airport, Hemmed in at Heathrow March 27th 2008 (retrieved: 24-05-14)

124

TheEconomist.com [online] Expanding Heathrow Airport, Clearer skies? December 10th 2009 (retrieved:25-05-14)

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If a big shift from domestic and short-haul flights to high-speed rail network were to occur, demand would also shrink.125 However, no serious analysis, no planning, and no money has been earmarked for plans of building high-speed rail links. There is thus no indication that the government is pursuing this option seriously. 126

1.4.2.11

Technological spillover

Introduction of better jet-engine technology, bigger planes and more efficient flying practices, improving fuel efficiency by e.g. 0.8-1.5% p.a. would also improve airport economics.127 Thanks to better jet-engine technology, bigger planes and more efficient flying practices, improving fuel efficiency by 0.8-1.5% each year. For an example, the introduction of the Boeing 787 or the Airbus A350. Both planes make it possible to fly fewer passengers further, potentially bypassing hubs.128 1.4.2.12 Serve new emerging-market destinations instead of point-to-point short-haul flights

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Companies operating internationally need direct flights to destinations all over the world. The richer emerging countries get, the more important this will become. Good connections to capitals are not enough: the economic action is increasingly in second-tier cities; London thus depends on foreign business. LHR has some flights to new emerging market destinations, Hyderbad, Bangalore and Guangzhou. But the airport is essentially full. To make room for new destinations, it needs to bump off old ones, for an example by losing point-to-point holiday destinations, which have little impact on the wider economy. This would also cause a major stimulus in demand structure, as point-to-point holiday makers would go off to other airports in London increasing competition. Anyhow, demand for shorthaul flights are sinking, for an example in 2007 there were 124 flights a week from Edinburgh to LHR, 115 from Glasgow and 54 from Belfast, according to Innovata, a company that collects and analyses data for airline business. In 2012, there are 109, 60 and 42.129 1.4.2.13

Price environmental costs into tickets to dampen demand

In 2013, the government projected the number of passengers flying into and out of Britain every year, to triple by 2030 (analysis vary from year to year as from institution to institution). However, Demand projections on based on falling prices. Yet even current prices do not reflect the full cost of flights. Airlines (unlike any other form of transport) are exempt from fuel tax, tickets are exempt from VAT, and the government makes no attempt to price in the environmental costs of flying [pollution: negative externality could also be 125

TheEconomist.com [online] Expanding Heathrow Airport, Clearer skies? December 10th 2009 (retrieved:25-05-14)

126

TheEconomist.com [online] Airport expansion, Gordon’s Heathrow Gamble January 15th 2009 (retrieved: 25-05-14)

127

TheEconomist.com [online] Expanding Heathrow Airport, Clearer skies? December 10th 2009 (retrieved:25-05-14)

128

TheEconomist.com [online] Britain’s airports, Still up in the air, December 21st 2013 (retrieved: 27-05-14)

129

TheEconomist.com [online] Keep moving, Growth is straining London’s infrastructure, June 30th 2012 (retrieved: 25-05-14)

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taxed]. Noise aside, estimates for the cost of the carbon dioxide, hydrocarbons and other gunk aeroplanes spew out around the world range from £1 billion ($1.6 billion) to £6 billion a year. Pricing environmental costs into tickets would probably dampen demand growth, but not stop it. More airport capacity would still be needed around London .130

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130

TheEconomist.com [online] What was that you said? August 14th 2013 (retrieved: 26-05-14)

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1.4.2.14 Open Skies Agreement It is also argued that expansion at London’s airports, in any form, may not be necessary as transatlantic routes from LHR are no longer the preserve of a select four airlines. On March 31st Air France-KLM became the first European airline to begin servicing from LHR to America, i.e. travel across the Atlantic, which is one of the most profitable major route in the world, under the “new open skies” agreement between Europe and America to liberalize routes, at a competitive price from Terminal 2.131132 1.4.2.15

Inclusion of airlines in the European emissions-trading scheme 2012

Environmental concerns will hinder passenger growth. Through the inclusion of airlines in the European emissions-trading scheme 2012, travelers will bear the cost through dearer tickets. The British government announced plans in 2008 to cut CO2 emissions by 80% from their 1990 levels by 2050.133134 However, if airports in Britain were to expand 570m passengers a year across Britain by 2050 up from 230m in 2009, plans to cut carbon emissions by 80% are unlikely to survive.135

35 2. Discussion/Criticism More people want to fly, but no one wants an airport anywhere near them. The public concern over noise, especially over peace, traffic safety and pollution (greenhouse gas emissions) is growing.136137 The 62-year-old airport is hemmed in by residential areas on all sides. To the west, centres of Slough, Staines and Windsor, all big towns, are within five miles. For an example, thanks to westerky winds and the east-west axis of its two runways, about 2m individuals in West London and neighbouring towns endure noise and air pollution. The impact would be much more severe if flight numbers were to be raised form 480,000 (2007) to 720,000.138 For an example, night flights at LHR cause substantial sleep disturbance and significant annoyance among residents.139

131

The Economist.com [online] Terminal 5, Still a mess, April 3rd, 2008 (retrieved: 24-05-14)

132

TheEconomist.com [online] Crowded airports, Landing flap, April 4th 2007 (retrieved: 23-05-14)

133

TheEconomist.com [online] Aviation, How to fix Heathrow, April 27th 2008 (retrieved: 25-05-14)

134

TheEconomist.com [online] Heathrow’s future, The right side of the argument November 6th 2008 (retrieved: 25-05-14)

135

TheEconomist.com [online] Expanding Heathrow Airport, Clearer skies? December 10th 2009 (retrieved:25-05-14)

136

TheEconomist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

137

TheEconomist.com [online] Heathrow, Turbulence, November 22nd 2007 (retrieved: 24-05-14)

138

TheEconomist.com [online] Aviation, How to fix Heathrow, April 27th 2008 (retrieved: 25-05-14)

139

The Econpmist.com [online] Terminal 5, Call that a decision?, November 22nd 2001 (retrieved: 23-05-14)

FRIEDRICH/BAIRAMOV LHR Capacity Enlargement and Economic Sustainability

Abbildung 15: Your 4:45am Alarm Call

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Abbildung 16: Your 5:00am alarm call

FRIEDRICH/BAIRAMOV LHR Capacity Enlargement and Economic Sustainability

Abbildung 17: Your 5:15am alarm call

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Abbildung 18: Actions of Environmental Campaigners

FRIEDRICH/BAIRAMOV LHR Capacity Enlargement and Economic Sustainability

III.

Conclusion

Findings of the paper address two possible ways of resolving the complexity of economic sustainability and capacity enlargement at LHR. A first resolution may be seen as a capacity expansion. A second resolution may be seen as an anti-capacity enlargement. The authors recommend LHR not to expand its capacity by any means but to sustain its economic performances.

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FRIEDRICH/BAIRAMOV LHR Capacity Enlargement and Economic Sustainability

Appendix A: Timeline A list of key events occurred during the course of the airport operating as an nonmilitary airport is used as an basis of the analyzing process.140 1930 – Private Airport „Great West Aerodrome“(West of Capital) 1946 – Ownership transfer RAF (WWII Base) to Air Ministry, now “London Airport” 2000 - Expansion to four terminals, now “Heathrow” as of the ancient village on site Heath Row 1955-1986 - DFT air passenger forecasts predicts increase to 400 million air passenger traffic by 2020 [eventuating?] from 160 million p.a. in 1998: first appearance need for increasing capacity arises December 12th 2000 – Government green paper “The Future of Aviation” released predicting that demand of passenger travel and freight movement will double by 2015 if not restrained141

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June 2001 – Labour minsters are reported to be considering third runway expansion at LHR to relieve congestion in LDN and SE. Business goliaths argue: LHR must not lose market share to EU rivals. Businesses near LHR are also in advantage. Rod EDDINGTON, CEO BA, backs plans December 2003 – Alistair DARLING, transport secretary, publishes white paper plans for third runway and sixth terminal at LHR; completion predicted 2012 December 2006 – Government reaffirms support for third runway expansion in update to white paper, whereas environmental campaigners warn: aviation growth equals increase in carbon emissions in UK August 2007 – Protesters set up Camp for Climate Action near Sipson, northern edge of LHR November 2007 – Government publishes public consultation document: endorsement LHR expansion and 220,000 extra flights per year whereas Ken LIVINGSTONE, London mayor, undermined conflict against climate change: government shall reduce demand for air travel by investing in rail infrastructure February 2008 – Protesters stage anti-expansion demonstration on roof of Houses of Parliament March 2008 – Opening of Terminal 5, foreseen to handle 35m passengers yearly, measured operational inefficiencies as of break-down of baggage system

140

theguardian.com [online] Heathrow third runway – timeline of events, published by Jessica Aldred on: 0609-12 (retrieved: 22-05-2014) 141 The Economist.com [online] The problems stack up, December 7th 2000 (retrieved: 23-05-14)

FRIEDRICH/BAIRAMOV LHR Capacity Enlargement and Economic Sustainability

June 2008 – David CAMERON, conservative opposition leader, criticizes Gordon BROWN, Labor prime minister: “pig-headedly”, as for pressing ahead with third runway expansion at LHR; indicates non-backing by Tory government August 2008 – EU warns: LHR third runway expansion breaches air pollution guidelines September 2008 – Conservatives pledge scrap plans for LHR third runway expansion and build £20bn high-speed rail link instead November 2008 – Divisions emerge within Labour Party over LHR expansion plans December 2008 – Geoff HOON, transport secretary, announces delay to decision as of environmental impact where Gordon BROWN, prime minister, reiterates support 2009 – Competition Commission forced BAA to sell off Gatwick142 January 2009 – Government approves third runway: increase from 480,000 to 700,000 flights p.a. whereas opposition MPs, residents and green groups condemn announcement Boris JOHNSON, new Conservative mayor of London, denounces decision

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Labour survives House of Commons vote on LHR expansion but 28 Labour MPs revolt and join Opposition February 2009 – Boris JOHNSON, launches plans for new airport in Thames estuary, dubbed “Boris Island” March 2009 – BBA cannot lodge planning application for project before next general election; Tories may thus scrap plan if elected: Labour’s plans hence at risk April 2009 – Councils, residents and environmental groups launch legal challenge against government’s plans December 2009 – House of Commons negotiates government plans ²in view of economic benefits to the UK² March 2010 – Labour loses general election, coalition government formed between Conservatives and Liberal Democrats: LHR expansion cancelled and new runways at Stansted and Gatwick proposed BAA drops plans for LHR and STN expansion October 2011 – Maria EAGLE, shadow transport secretary, announces Labour support for third runway Justine GREENING, new transport secretary: government will not revisit ban on third runway but refuses to reject outright JOHNSON’S proposal for new aviation hub in SE England

142

TheEconomist.com [online] Locating airports, Hub caps February 4th 2012 (retrieved: 25-05-14)

FRIEDRICH/BAIRAMOV LHR Capacity Enlargement and Economic Sustainability

January 2012 – BAA announces record traffic figures for LHR: 69.4 m passengers in 2011, signaling need for expansion February 1st 2012 – BAA lost appeal against having to offload Stansted143 February 2012 – London business goliaths denounce coalition as “negligent” for ruling out third runway simultaneously signaling government reconsideration of options for greater airport capacity in SE March 2012 – trigger event: David CAMERON, prime minister, and George OSBORNE, chancellor, now convinced to re-examine long term policy on LHR as a response to domestic and overseas business goliaths June 2012 – Government announces it will not block BAA from submitting third runway expansion proposal at LHR Tony TYLER, director general of International Air Transport Association: political decisions are needed on airport expansion to prevent UK from falling behind continental competitors Airline chiefs slam government for “easy, populist decision” to scrap third runway and demand coalition to spell out strategy for airport expansion July 2012 – Chancellor is pressing prime minister to drop opposition to third runway

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Key Osborne allies: government should grant planning permission for third and fourth runway at LHR Justine GREENING publishes aviation strategy including proposals on emissions, noise levels, night flights and regional airports August 2012 – Justine GREENING: third runway expansion at LHR “not a long-term solution” Nick CLEGG, Lib Dem deputy prime minster: ministers will need to stick to coalition agreement Tim YEO, former environment minister: prime minister should decide if he is “a man or a mouse” over the expansion at LHR; environmental objections to a third runway are disappearing and backing third runway would give government “sense of mission” September 2012 – George OSBORNE declares support for new runway in SE England, possibly at LHR, however comes under attack by own party: “disaster” Justine GREENING, fierce opponent of third runway expansion at LHR is removed as transport secretary and a cabinet reshuffle sees Patrick MCLOUGHLIN take post and inherit row over expansion Summer 2015 – Sir Howard Davies, an economist, asked to advise on where around London to put a new airport runway by government was told to issue an final report in 143

TheEconomist.com [online] Locating airports, Hub caps February 4th 2012 (retrieved: 25-05-14)

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the summer of 2015 (interim report by Sir Howard’s airports commission, released on December 17th, rejects a proposal to expand Stansted Airport in Essex and all but rules out a new mega-hub east of London. It leans heavily on two options: adding a third runway at Heathrow, London’s current international hub, or adding a second runway to Gatwick, south of the capital)144 David CAMERON: will not renege pledge to oppose third runway expansion at LHR on his manifesto but would rule out third runway expansion if he were to remain Conservative leader Talks are to start: it is believed Commission, driven by George OSBORNE, will allow commission rules in favor of expansion. Sir Howard DAVIES, former director general of CBI is appointed as chair. Sir Howard DAVIES commission is not expected to produce final report until after next general election in 2015. 2014 On May 14th [2014] the two airports, along with an independent group led by a former Concorde pilot, submitted their revised cases to the commission, trying to make the best case for expansion yet.

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Both boosters at Heathrow and Gatwick argue that another runway at each airport will add billions to the economy and create thousands of jobs. But how each airport proposes to do so differs markedly145

Appendix B: Aviation Departments146147

TheEconomist.com [online] Britain’s airports, Still up in the air, December 21st 2013 (retrieved: 27-05-14) 144

145

TheEconomist.com [online] London’s airports, Slowly taking off, May 14th 2014 (retrieved: 29-0514) 146 147

Hoerter, p.12

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