BTN Europe presents an overview of business travel and MICE predictions for this year
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Like children who sneak a peak at their Christmas presents before they’ve been wrapped, Heathrow and Gatwick got a glimpse of bounties to come last December when Sir Howard Davies’ Airports Commission published its interim report.
The potential realisation of the two airports’ expectations in the report was a bleak contrast to the result for London mayor Boris Johnson, whose request for a massive hi-tech toy in the Thames Estuary was turned down. Davies has not totally ruled out Boris’s dream present, but has told the excited boy to ask for something slightly different to the island airport he requested and, crucially, to find out how much it will really cost.
The next pronouncement from Davies is likely in September, when he will rule in or out the concept of a new London hub on the Isle of Grain in the Thames Estuary. From the interim report, the chances do not look good. Davies says the Thames Estuary idea reflects the fact that London’s geography is shifting to the east and “shows great imagination and ambition”, but “costs and risks attached to such plans are so high that they present serious challenges to the credibility of these options”. Furthermore, it would, he says, require the closure of Heathrow for it to be commercially viable, plus that of London City and Southend airports for airspace reasons. Then there is the location: in the middle of a bird and nature reserve – the worst possible in terms of political opposition and potential threat to aircraft safety.
But what could really scupper the Isle of Grain proposal is cost. Davies calls it “extremely high”, putting it at £82-£112 billion, including surface access, meaning it is beyond the range of the private sector alone. The report adds this is five times the price of a new runway at Heathrow and does not include costs related to buying and closing Heathrow.
Leading the field
The airports that did make the shortlist were no surprise. At Heathrow, one option included the long-mooted plan for a 3,500-metre runway to the northwest. This would raise capacity from 70 million to 130 million passengers a year but involve the demolition of 950 homes and flatten two villages. Preliminary costings for this, according to the airport, are around £17 billion, although it is preparing exact figures for resubmission to Davies in May.
The other option is left field, literally as well as in concept, as Davies is considering an idea a former Concorde pilot put forward 25 years ago – the extension of the existing northerly runway to the west, allowing it to operate separately for departures and arrivals. The rough cost is £10 billion, although the 2M Group of local authorities surrounding the airport claims the bill for noise insulation for either option will add up to £580 million.
Heathrow’s big opponent is Gatwick, which also operates at its limit at peak times. The proposal here is for a new runway of more than 3,000 metres south of the existing one, allowing it to operate independently, at a cost of around £9 billion. As at Heathrow, a new terminal or satellite building would be required. Gatwick operates mainly in a different market to Heathrow, with flights overwhelmingly for the leisure market, but that could change if its wish is granted.
Out of commission
The one airport definitely not coming to the party is Stansted, which had pitched itself as a potential replacement for Heathrow, with five runways costing £59-£80 billion. The commission dismissed this idea, saying that Stansted’s passenger numbers “have fallen in recent years and there is considerable spare capacity, unlike at Gatwick”. It added: “In addition, a large hub airport would be close to the cost of the Estuary, highly disruptive to airspace and would not present the same regeneration opportunities.” Davies concluded, however, that Stansted may have a plausible argument for a second runway in the 2040s.
Another loser is Birmingham. It currently has nine million passengers with space to double that now, but it had hoped for the go-ahead for a second runway, rocketing its capability to 70 million. However, even with the HS2 high-speed rail link, the commission said that “intervening to redistribute… excess demand away from airports in London and the South East does not appear to be a credible option”.
Birmingham’s retort that Davies “further entrenches the dominance of the South East economy to the detriment of the growth of the rest of the UK” may well be true, but the commission has recognised that persuading Londoners to fly from the Midlands is a tall order.
The winners look to be Heathrow and Gatwick, which some might say is no surprise, and unless the Isle of Grain backers come up with something astounding, it seems as if London’s existing two major airports will get their way.
Heathrow’s argument is that it is already the UK hub and, if only for the sake of convenience, needs to stay that way, a view solidly supported by the aviation industry.
According to Heathrow chief executive Colin Matthews, there are six airports in the world that offer more than 50 long-haul destinations, and Heathrow is among them, offering 90, with two runways. This compares to Frankfurt’s 111 destinations using four runways. On this evidence alone, Heathrow should surely remain the UK’s premier airport and, indeed, the world’s premier international airport, and it needs to be expanded to permit this.
However, that latter distinction will not last much longer as Dubai and its airports continues to advance, fuelled by Emirates’ growing fleet of Airbus A380s, the world’s largest. Last year, Dubai increased its international passenger numbers by more than 15 per cent to 64 million and this year it will topple Heathrow’s crown – helped, as Davies points out, by the fact that two-thirds of the world’s population lives within eight hours’ flying from it.
Heathrow, which grew its international passenger numbers by only 2.5 per cent in 2013, may well have a geographical advantage when it comes to transatlantic flights, but the Middle East hubs are, from a business point of view, bang in the middle of the planet and will pick up more and more trade from emerging Asian and African markets, particularly once the new five-runway Dubai World Central airport opens.
Similarly, the new Istanbul airport, which will open in 2017 with 90 million capacity, is projected to grow to 150 million, a credible figure given its location and Turkish Airlines’ aggressive ambitions.
You snooze, you lose
UK plc was caught napping here, as Davies points out. The government’s 2003 white paper, The Future of Air Transport, makes only one reference to Dubai, mentioning a new Emirates’ flight to Glasgow.
Millions of UK travellers are already seeing the advantage of these new hubs. You can argue that where flights from the UK are indirect, for example, to a secondary city in China, that it is better to split the journey midway in the Middle East rather than fly, for example, from London to Hong Kong, and then have an annoying one- or two-hour hop on to the final destination. The counter argument is, of course, that it would be better to have the capacity to permit direct flights from London – always assuming demand is sufficient.
The UK is reaping the failure of vision when it comes to airport expansion, which proponents of the estuary airport are quick to mention. Indeed, the big flaw in Heathrow’s argument is short termism. Matthews admits that a third runway – and implicitly also a sixth terminal – will last Heathrow only until 2040/50. Lord Foster, the architect behind the estuary idea, adds that if Heathrow is expanded, we will, in ten years’ time, still have to confront the issue of having a hub whose approach is over the city, with the safety and noise implications that brings.
Matthews himself admitted late last year that the long-term picture was uncertain and dependent largely on what happens in the Middle East. Emirates, Etihad and, to a lesser extent, Qatar Airways will have a profound effect on demand for new routes in the next two decades and are already doing so. Two years ago, British Airways was gifted around 36 slots at Heathrow from the purchase of BMI, but has so far only announced three new long-haul destinations – Chengdu, Austin and Seoul, the latter being a reinstatement of a city it served until the mid-1990s. Although no-one is ever likely to admit it, perhaps there is simply no longer the will for Heathrow and its incumbent carriers to stretch their wings any further, given the competition they see further down the line.
Despite Heathrow’s inevitable fall from grace, the industry remains resolutely behind its expansion as the UK’s leading international hub, if no longer the world’s.
Dale Keller, chief executive of the Board of Airline Representatives in the UK (BAR UK), calls it “the only sensible way forward for the UK” due to the cost of the alternatives, which, he points out, will ultimately be borne by passengers, unlike rail investment.
Keller believes £50-£70 billion of the cost of building an estuary airport would have to come from airlines – and, therefore, passengers. “That must mean at least double the current Heathrow passenger charge and that would put London in a different league to anywhere in the world. The public subsidy would have to be so massive that we’re not sure any government would have the stomach to open its cheque book.”
There is an argument – not put forward by Davies – to say that other major cities, for example New York, function without an airport that acts as a major hub. In the US, hubs are built where there is space – Atlanta, for example – so perhaps it is time for an alternative view: that hub expansion should happen on continental Europe and not in overcrowded southern England, particularly as 64 per cent of Heathrow passengers walk out its front door rather than transfer to other flights.
There are also advances in aircraft design to take into account. New runways are, almost literally, set in stone, but the hub idea is becoming more open to question now that aircraft like the Boeing 787 and Airbus A350 exist. These aircraft are designed for point-to-point routes with less demand that are not viable with other types – for example, Air India’s Birmingham to Delhi service. However, a quick riposte to those who say that more of these secondary routes mean less of a need to expand hubs is that most of the airlines that have ordered these aircraft operate from major hubs and have so far revealed no plans to do otherwise.
There is, unsurprisingly, no support for the dispersal argument in the industry. Keller emphasises the importance of an aviation hub to the UK economy: “The power and scale, globally, of our main airport is a massive economic driver. It’s a real success story. It’s a simple choice: do you want jobs here or overseas?”
Gatwick, however, is pressing on with its argument that New York is a model of the ‘constellation approach’, whereby three sizeable airports serve the city – something it believes could function for London and the South East. It will be a tall order to persuade airlines of this. Gatwick’s position has been steadily eroded with the loss of all its US carriers to Heathrow and some short-lived services to Asia, such as Korean Air – although it has managed to attract and retain some mainly leisure routes to this part of the world. “Gatwick has put forward some very sound arguments, but the government is saying that it has capacity and the airlines are not taking it up,” says Keller.
The building of a second runway at Gatwick will not bring the US carriers back unless there is a massive switch from Heathrow, and that means persuading an alliance to move there lock, stock and barrel. In the 1990s, British Airways put many African and South American flights there, using the slogan: ‘The hub without the hubbub’, but soon found that having two hubs so close – but to the passenger, so far – simply didn’t work.
Only a wholesale switch of connecting long- and short-haul flights under one roof will be a viable solution. The bait would have to be a dedicated terminal or, at least, a considerable part of a swanky new building and the granting of slots to permit a wave of connections at either end of the day. Even with all this, it will be a brave group of carriers that agree, particularly as Heathrow is already ahead, with Skyteam occupying Terminal 4 and the June opening of Terminal 2, a dedicated Star Alliance facility.
Horst Findeisen, Star’s vice-president of commercial and business development, doubts Gatwick’s persuasiveness. “Passengers prefer Heathrow,” he says. “You can measure that in the premium Heathrow brings. Any offer to move would have to be a damn good one.”
Once again, all roads point to Heathrow or the brave new worldof the Thames Estuary – but whichever option is chosen, the commission says there is “a clear case” for an additional runway to be brought into operation in the South East by 2030. The downside is that it might take until then before anything actually happens.
Gap in the market
Meanwhile, there will continue to be the logjam over the capital’s skies, which London City airport sees as an opportunity. It believes that, because two-thirds of Heathrow’s traffic is point-to-point, a big slice of the short-haul flights there could relocate in its direction. A mini gold-rush is already underway, with airlines like Luxair selling their Heathrow slots for tens of millions and moving east to London City.
The airport currently handles just under 3.5 million passengers and has capacity to take that to six million by 2023 if a planning application this summer is agreed, granting permission for a terminal extension, more stands and a taxiway. “Davies doesn’t even present its findings until 2015, and any new runway will take longer than ten years,” says City’s corporate communications director Jeremy Probert. “We’re not a hub replacement, but we could take some of the short-haul from Heathrow, freeing slots for long-haul.”
Keller agrees other airports around the capital have a part to play if Heathrow is chosen. “A three-runway hub may serve us for a long time because we can grow traffic elsewhere. Other cities can’t.”
The next decade will undoubtedly see some capacity shifting around as the arguments and, eventually, perhaps the construction of new runways rumble on.
How long this rumble continues is anyone’s guess, but International Airlines Group (IAG) chief executive Willie Walsh may have summed up many people’s view as to the commission’s likely effectiveness. Walsh said that, when it is published next summer, the commission would produce the best report of its kind that the UK has ever seen, but added, wearily, that it would then be given to politicians “who won’t do anything”. It’s a cynical view, but one that might not be too short of the mark. Even Heathrow’s Matthews says: “It’s one thing to produce the report – it’s another to have the political coherence to deliver it.”
It could be that by the time anything is done, Heathrow will have long lost its status as the world’s leading international airport, and Dubai, Istanbul, Abu Dhabi and Doha will be calling the shots.