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With the BAA monopoly finally broken and Sir Howard Davies pondering expansion suggestions, Gary Noakes looks at who's likely to emerge victorious from the airport wars
YOU DON’T HAVE TO be an economist to see that the government’s 1986 privatisation of the former BAA (British Airports Authority) had little to do with promoting competition, particularly in the south-east.
Selling off Heathrow, Gatwick and Stansted (as part of a package of seven UK airports) never encouraged them to go head to head, particularly since London City Airport would not open for 12 months and would take 15 years to get into its stride, while Luton had yet to enjoy the no-frills bounty and Southend airport was on no-one’s radar.
Today, four years after the Competition Commission ordered the break-up of BAA, we have a new order. BAA is now humble Heathrow Airport Holdings; Gatwick is owned by Global Infrastructure Partners, which also controls London City; and Stansted is part of Manchester Airports Group (MAG).
GETTING THEIR FAIR SHAREEach airport has already made their pitch to the Airports Commission, headed by Sir Howard Davies, all of them except Heathrow arguing that the main London hub has had its way for too long and demanding a fairer share of business travellers.
In the short term at least, they have a point, as even if a new runway at Heathrow is agreed tomorrow, it will be more than a decade before it comes into service. Given this hiatus, Heathrow’s rivals are keen to establish credentials with corporate travellers and bookers.
“There will be no new capacity until 2025 at the earliest,” said Guy Stephenson, Gatwick’s chief commercial officer. “Continuing to focus on Heathrow is not focusing on the needs of the business traveller.”
‘VIRTUAL INTERLINING’Gatwick is making the most of the years of indecision, spending £1.2 billion on improvements and innovations. The most radical of these is Gatwick Connect, its attempt to overcome budget airlines’ reluctance to interline with other carriers.
Gatwick is offering carriers ‘virtual interlining’. Arriving passengers are directed to the Gatwick Connect desk after they pick up their bags, are issued with a boarding pass for their next flight and their luggage taken off them. The crucial difference with a full interline arrangement is that they must go through immigration and return through security. It is clumsy, but the best the airport can do.
So far, only Norwegian has signed up for Gatwick Connect, but Stephenson points to Easyjet’s deal with Emirates, whereby the Arab carrier’s frequent flyer points are redeemable on the budget airline, as proof that different types of carriers are willing to talk. However, this idea has its challenges – Stansted estimates that, at best, only 10 per cent of its own passengers switch to another budget flight when they arrive.
Other innovations at Gatwick are aimed at the more conventional business traveller. Premium parking at the South Terminal now includes fast-track security, and a common-use bag drop is being tested. Separate gate rooms for business travellers are also being examined and free wifi extended from 30 to 45 minutes. Kerbside drop-off for North Terminal business customers is planned.
A customer relationship management strategy, aiming to capture data normally held by airlines, is under development because, as Stephenson points out, airports have little relationship with those that pass through them.
He recognises that business travellers need frequency of services and adds that carriers like Norwegian are bringing this – at least in short-haul. More business routes are needed, however. “Strategically, we are focusing on this; as the most seasonal airport in Europe, it’s important that we reduce that.”
The airport has tried to attract Asian carriers in particular. Air China and Vietnam Airlines successfully established themselves, but Hong Kong Airlines, Korean Air and Air Asia X were short-lived (though a bigger loss for Gatwick was the US carriers, which all migrated to Heathrow, the last of them, US Airways, in March). However, Indonesia’s Garuda is scheduled to start flights to Jakarta in May 2014 and Stephenson says another Asian carrier is on the cards this winter.
QUICK OFF THE MARKMeanwhile, at Stansted, MAG has wasted no time since acquiring it in February. A £40 million spend on terminal improvements is being matched by commercial partners and, in total, MAG has pledged to invest £230 million over five years.
Changes at check-in will reflect the fact that most Stansted passengers do it online and more than half have no hold baggage. Security will be enlarged, seating doubled and there will be a better choice of restaurants. One of the airport’s priorities is a generic business lounge in the main building to complement others in satellite areas.
Stansted Airport managing director Andrew Harrison says new meet-and-greet parking is now in operation. Soon, there will be a dedicated pathway for those without luggage, with fast-track security for those that qualify, a process that takes “probably five minutes, tops”.
Business travel accounts for 16 per cent of Stansted’s passenger numbers, without counting the 6,000 flights per year from its dedicated business aviation terminal, but the main airport is served by only 11 carriers, most of them budget airlines.
“We have over 70 at Manchester and are having conversations. A large number of network carriers have not talked to Stansted for a long time,” says Harrison, who admits, however, that none are likely to appear before 2015. A hot contender must be Emirates, which is adept at making a success of secondary airports.
An immediate progression this summer was Stansted’s five-year deal with Easyjet to double passenger numbers to 5.6 million by 2018. Despite this, Harrison says Gatwick’s virtual interlining experiment is not a priority for Stansted.
One stated ambition is to cut the Stansted Express journey time from 47 to 30 minutes, something unlikely in the near future, as this requires four tracks instead of two. Meanwhile, an incentive for corporate travellers is that first class Stansted Express passengers can use fast-track security and the No.1 Traveller lounge. New rolling stock also features laptop power points.
LONDON CITY MEANS BUSINESSFor all the bigger airports’ attractions, many business travellers’ favourite is London City, and while it has branched into leisure flights, its roots remain firmly corporate. Business destinations make up the bulk of seven cities added this year, including Nuremburg and, from September, Dusseldorf. On the technology side, self-bag tagging has been introduced for British Airways’ passengers, with a claimed average processing time of 24 seconds.
Expect more like this once a technology initiative, called the ‘Internet of Things’, is implemented. London City is the capital’s only airport to explore the concept, which connects parts of buildings and gadgets via a sensor network, measuring journey time, tracking passengers through the terminal and allowing things like food pre-ordering and baggage tracking.
Not all the initiatives are this hi-tech, but the corporate traveller can stride through any airport terminal with the reassurance that whatever airports come up with, it is all aimed, first and foremost, at their most valued customer, them.
VESTED INTERESTSPredictably, the evidence presented to the Airports Commission’s investigation into south-east airport capacity highlighted vested interests from all concerned.
Heathrow argued for the status quo – one hub airport to serve London, if not the UK – pitted against an alternative hub to the east, proposed by London mayor Boris Johnson. Gatwick and Stansted pitched for their share of Heathrow’s traffic, the latter hinting at ambitions to replace it as a hub.
One thing Sir Howard Davies can agree is that something must be done, as the south-east will reach capacity by 2030. Heathrow says a third full-length runway to the south-west would expand capacity from 70 million to 130 million by 2029. It would obliterate 850 homes, less than a third lost if a northern site is developed. However, 1,769 acres are classified as ecologically sensitive, unlike the north, where no land has this status. There is also a reservoir and the M25 to take into account, bringing the construction bill, Heathrow estimates, to £14-£18 billion, still a fraction of ‘Boris Island’s estimated £70 billion bill.
Heathrow’s opponents say the third runway would not deliver anything like this capacity increase and that a fourth would be needed.
Gatwick, which has a quarter of London’s traffic, argues for the ‘constellation approach’, where the city is served by several airports, as with other cities, such as New York and Paris. Stephenson argues that as only 13 per cent of the traffic at London airports is transiting, there is less need for the hub approach. “That percentage is not going to change. London’s needs over the next 30 years are predominantly point-to-point,” he says.
This argument may have credibility, as new aircraft could partly determine the future airport. The Boeing 787 and Airbus A350 will, some believe, generate more point-to-point routes and render the hub approach less relevant.
Gatwick’s ambition is for a second runway from 2019, costing £5-9 billion, to cope with some of its estimated 100 million extra demand for the London area airports until 2050. This would increase its capacity from 34 million to 67-87 million by the 2040s, claims Gatwick.
“It would, I expect, need a third terminal, it would be as big as Heathrow. That kind of airport has the ability to build connecting traffic if that is what the airline model is in the future,” Stephenson added.
Stansted, which currently has 356 daily slots available, claims it could double existing capacity “overnight” to 35 million. Harrison says the airport has only “answered the exam question” and will await Davies’s recommendations, but tentatively suggests an additional runway, depending on location, could increase capacity to 70-90 million. Another proposal is for four runways and capacity of 140-160 million – at a claimed cost of only £10 billion.
Harrison believes there is a case, pointing out that Stansted’s infrastructure is only 23 years old, London’s geography is shifting eastwards, and Cambridge’s research and development industries are booming.
Others take the dispersal argument further. “The next 20 years are going to see another 100 million passengers. Even with more runways, the south-east won’t cope – and who’s to say that BA will be the dominant carrier, given the Middle East growth?” says Paul Kehoe, Birmingham Airport chief executive. “If we are saying the world’s sixth largest economy [according to the Centre for Economics and Business Research in 2012] can only have one major airport, that’s a very poor state of affairs.”
It will be a bold decision for Sir Howard to make in 2015 – and an even bolder politician that follows it through.
BIRMINGHAMTHE AIRPORT NOW OFFERS Aer Lingus passengers flying via Dublin pre-US immigration and customs clearance. From next April, a runway extension will allow Boeing 777s to operate at full range. The airport is also examining Bluetooth technology to identify frequent business flyers.
Birmingham on Davies: The airport argues it should be one of four major UK gateways. It serves nine million passengers, but has immediate capacity for 18 million. With a second runway it could handle 70 million.
MANCHESTER SEVENTEEN NEW ROUTES this summer mean Manchester should reach 20 million passengers for the first time since 2009, with a target of 22 million next year. New destinations include Cairo, Moscow, Athens and Lisbon. A £500,000 Escape Lounge has just opened at Terminal 3, which means all three terminals now have a paid-for lounge option
Manchester on Davies: The airport says five million passengers travel unnecessarily from the north to congested south-east airports. It asked for air passenger duty reform to enhance connectivity, improved surface access to airports with spare capacity and a loosening of restrictions on overseas airlines.