Transport and the economy

Memorandum from Gatwick Airport Limited

Executive Summary

1. Gatwick Airport Limited (Gatwick Airport) welcomes the opportunity to respond to the Transport Select Committee’s new inquiry, Transport & the economy. Gatwick Airport is well placed to respond to this inquiry given that it is the UK’s second largest airport and best connected airport in the country. It has the busiest single-runway airport in the world and served more than 32 million passengers (in 2009) to over 200 destinations in 90 countries for short-haul, long-haul and charter airlines. Gatwick Airport is a new voice in the UK aviation sector and is competing to become London’s airport of choice.

2. The airport is a major economic driver for the South-East region, directly contributing around £2 billion annually to the UK economy [1] , in addition to £360 million that our passengers pay in direct tax on their journeys [2] . The airport supports 23,000 on-airport jobs and a further 13,000 jobs through related activities. In addition to the direct economic wealth that we generate, we also support 10% of the UK’s inbound tourism market [3] . Our £1 billion investment programme is already underway and will directly improve the overall passenger experience, and in turn enhance the airport’s contribution to national, regional and local economic growth. Gatwick is the best connected major airport into the heart of government and City of London. It is situated 28 miles south of London with excellent public transport links, including the award winning Gatwick Express.

3. Gatwick Airport is no longer part of BAA Ltd, having been sold in December 2009. The new owner of Gatwick Airport is Global Infrastructure Partners, a $5.6 billion independent investment fund that invests worldwide in infrastructure assets. Under new ownership, Gatwick Airport shares the new Government’s commitment to focus on improving the overall air passenger experience. We are happy to be a key player on the newly formed South East Airports Taskforce (SEAT).

4. Our response sets answers five questions posed by the Committee in relation to the Eddington Transport Study:

· Have the UK’s economic conditions materially changed since the 2006 Eddington Transport Study (Eddington study) and, if so, does this affect the relationship between transport spending and UK economic growth?

· What type of transport spending should be prioritised, in the context of an overall spending reduction, in order best to support regional and national economic growth?

· How should the balance between revenue and capital expenditure be altered?

· Are the current methods for assessing proposed transport schemes satisfactory?

· How will schemes be planned in the absence of regional bodies and following the revocation and abolition of regional spatial strategies?

5. Our views on these important issues are clear:

· Whilst economic conditions have worsened since the publication of the Eddington study in 2006, the overall findings of the Eddington study remain valid, in particular the need to identify the UK’s international gateways and supporting infrastructure as a key strategic priority of the UK’s future prosperity;

· We believe that transport schemes that support access to major national transport infrastructure should be prioritised if we are to maximise the potential for wealth generation and UK global competitiveness;

· We believe that Government has two important roles to play in determining the right UK transport infrastructure investments which are to:

- prioritise, support and deliver investments in transport infrastructure it needs to undertake, and

- support private sector investments aimed at improving transport infrastructure;

· We believe Government should develop a longer term integrated airports policy that is centred on future transport infrastructure needs and balancing sustainability considerations with the requirements necessary to develop and sustain a competitive UK aviation sector, and in turn rely on it, such as tourism. We are keen to play a part in formulating that policy;

· Alongside a longer term integrated transport policy for the UK, Government needs to create a clear, streamlined and efficient planning system at both national and local levels;

· Given the significant benefits that aviation contributes to the UK economy, we believe that Government should support investments that enhance sustainable connectivity to and from airports; and

· These challenging economic conditions require a new and innovative approach to infrastructure investment solutions. We are keen to explore new investment, operating and ownership models that would enable Gatwick to focus on delivering a great service at every step of the passenger journey. We want to work with, partner and help Government to build and deliver the right infrastructure investments for the UK that will enable the economy to grow again and bring greater prosperity to the nation.

5. Under new ownership, Gatwick Airport is a new voice for UK aviation. We would welcome the opportunity to expand on this submission by giving oral evidence at the forthcoming Committee session. We are content for this submission to be published by the Select Committee.

Introduction

6. Every year, Gatwick directly contributes around £2 billion to the UK economy [4] , in addition to £360 million that our passengers pay in direct tax on their journeys [5] . All in all, around £6.8 million flows into the economy every day as a result of our activities. This is in addition to the substantial income tax, national insurance, VAT and corporation tax revenues paid to the Exchequer by employers and employees every year. In addition to the direct economic wealth that we generate, we also support 10% of the UK’s inbound tourism market [6] . We will be a major enabler in achieving the Governments declared ambition of establishing the UK as one of the top five tourist destinations in the world [7] .

7. Our new £1 billion investment programme is already underway. It will directly improve the overall passenger experience and enable the airport to carry at least 40 million passengers a year using the airport’s one runway and two terminals, and therefore expand the contribution we make to the economy every year.

8. Gatwick Airport invests directly in public transport services and infrastructure at the airport not just through its regulated capital investment but also through a dedicated public transport fund [8] . This investment assists in facilitating the improvement of passenger and staff access initiatives to and from the airport, such as road upgrades, bus route development, electric vehicle charging points and cycle lane improvements. It demonstrates our commitment to increasing the public transport mode share of air passengers to 40% by the time the airport reaches 40 million passengers per annum (2009: 37%).

9. At a time when economic dynamism is needed, Gatwick is at the forefront of efforts to promote it. We believe that long term public spending on transport should focus on effectively harnessing, integrating and supporting existing transport ‘revenue generators’ for the UK economy to maximise their potential and boost the UK economy. Our view is that it is particularly important that Government supports companies that act or make provision to safeguard for investments and operations that meet the longer-term needs of the nation.

10. The Eddington study established some of the fundamental principles between transport and the UK’s long-term economic growth. We believe that these principles remain valid and require reinforcement to boost economic growth in the short term, given prevailing adverse economic conditions. Gatwick Airport supports Eddington’s conclusion that there are three strategic economic priorities for a transport strategy -

· the UK’s congested and growing urban areas and their catchments

· the UK’s international gateways and supporting surface infrastructure

· a limited number of inter-urban corridors connecting urban areas and international gateways.

11. Since publication of the Eddington study, the economy moved from healthy growth of 2.7% at the end of 2006 to a period of sustained recession that did not end until the beginning of this year. Virtually all economic growth that took place in the period 2006-2010 has now effectively been lost [9] . At the same time, unemployment has risen 62% from 1.54 million to 2.46 million [10] . Economic need now demands that the Government explore all possible avenues for promoting growth. Fiscal expediency would imply a focus on optimising the potential of existing infrastructure assets. Such a change in economic conditions means that Government must give greater focus as to which transport investments yield the greatest returns.

12. Maintaining and improving transport infrastructure will be a key precursor to achieving improved economic growth, as it facilitates economic activity of all types. Businesses will need to be able to transport goods and services in new and innovative ways and individuals will need to be able to move to areas were demand for labour is high. Transportation systems not only facilitate the movement of people and goods, but also have potentially wide-ranging impacts on land use, economic growth and quality of life [11] .

13. In the context of the current adverse economic environment, perhaps the most important role for transport infrastructure is as an enabler for inward investment. It therefore seems entirely appropriate that a significant proportion of transport spending should be focused on infrastructure that either directly facilitates, or otherwise promotes, inward investment and, to a lesser but still significant extent, a flexible labour market and more efficient transport of goods and provision of services.

14. Eddington correctly identified that the most important consideration is for ease of access to markets, customers and clients [12] . As an island, the UK’s ports and airports facilitate the vast majority of international trade. Eddington rightly focused on the key need to target investment towards these key international gateways [13] . Airports, and the means for travelling to and from them, provide a large part of this access [14] . If anything, the evolving economic conditions have made the need for investment in infrastructure that provides better access to markets, customers and clients even more important than it was in 2006. Effective and well supported international gateways are central to facilitating this export led growth that will help lead the UK economy out of the recession. It follows that transport spending priorities should focus on projects that support and expand this growth.

15. In the short-term, under the innovative approach brought by our new owners, we can cater for increased numbers of visitors as well as additional business traffic generated by increased export activity, using the existing capacity we have. This is particularly the case since Heathrow is full. In the long-term, all South East airports will be full and therefore an assessment of future demand is required and should be integrated into a national aviation policy statement.

16. Since 2006, the Climate Change Act has been published requiring a greater emphasis on measures to promote a low carbon economy. Achieving such carbon reduction targets requires partnership working to drive innovative and industry leading initiatives. This will mean changes in the way that organisations and business partners work together over the longer term horizon. This is a concept that we have embraced at Gatwick and our recently published ‘Decade of Change’ plan, which demonstrates our commitment to managing our carbon emissions and improving our efforts to mitigate environmental impacts of the airport’s operations. Furthermore, Gatwick Airport has a long-standing agreement with local councils not to build an additional runway before 2019. Our 2008 legal agreement with our local councils sets out our main sustainability obligations and commitments with local councils to enable the airport to grow to 40 million passengers annually and beyond. This agreement provides a clear framework for action. Meeting our sustainability targets and commitments is a top priority for our management teams.

17. S ince 2006, Air Passenger Duty ( APD ) has risen significantly . Since th e Eddington study , APD has increased two fold for short - haul and four fold for some long distance journeys. From November 2010 , Gatwick flights will contribute about £360 million to the E xchequer annually . These increased charges directly affect o pportunit ies for tourism, international trade and business activity and for visiting friends and relatives. The suppressed demand may in some circumstances le a d to lower airline profitability, reduced services and job losses.

18. From a competition perspective, in 2009, Gatwick Airport became an independent airport which means that that London 's two largest airports are now in separate ownership. Th is creates an exciting, new competitive environment which give s airlines and passengers a real choice as to which London airport to use.

19. Strategic transport infrastructure projects have the greatest potential to generate economic growth in the medium to long term. Any effort to revise transport spending prioritisation should be based on the potential that a scheme has for stimulating private and international investment in the UK. Improvements to rail and highway access to airports are clearly aligned with such criteria.

20. We believe that investment in, and access to, Gatwick’s railway station should be prioritised and supported by Government. Gatwick’s rail investment has suffered from chronic long-term under investment that does not reflect the strategic role the station plays. The station is not just the major entry point to and from the airport it is also both a local and regional transport hub and a major element of the national rail infrastructure in its own right. It is the busiest airport railway station in the UK. Also each year approximately 1 million passengers use the station who are not air passengers or airport-based staff. While a large number of Gatwick’s air passengers arriving by rail travel from within Greater London, rail mode shares from areas outside of South East England are also particularly high [15] .

21. We believe that infrastructure investments to protect and enhance rail provision and services for Gatwick are a clear example of the future direction for effective transport investment. Such projects will not only add to the revenue generation potential of this major international gateway but will also boost local and regional economic growth. The Government is committed to improving the end to end passenger experience for air passengers. Because of long term under investment, Gatwick’s station is simply not sufficient to deliver the quality end to end passenger experience that the Government has highlighted as important. Adequate rail provision will be a central part of meeting objectives that may be agreed through the SEAT. Should it not be possible for priority to be given to these investments by Government, then Gatwick Airport is keen to look at innovative ways to progress such infrastructure improvements, for example, through private investments and partnerships.

22. We recognise that High Speed Rail (HS2) could make an important contribution to enhancing the UK’s future transport infrastructure. However HS2 should not be delivered at the expense of existing rail projects that support access to international gateways for example, Thameslink. We also believe that the potential for revenue generation for HS2 could be increased through direct connections to major airports, including Gatwick. Providing access for Gatwick on such a national high speed rail network could help us broaden the role we have in supporting high quality sustainable surface access to the airport from access points across the UK.

23. In addition, we would welcome the opportunity to work with Government on a more strategic basis with transport and other relevant infrastructure providers to improve the way the UK prepares for future significant national events for example the Olympics and other major sporting events.

24. Infrastructure projects such as the proposed Gatwick Airport rail station enhancement scheme will provide many benefits for example, increasing platform capacity, facilitating the protection of key rail services (ie the Gatwick Express), improving passenger experience, providing a welcome environment for tourists and enhancing local economic benefits. Such benefits are clear examples of the type of capital schemes that should be considered of national significance. However these schemes should not be looked at in isolation as there are also a number of other capital transport schemes (not directly located at Gatwick Airport but related to its successful operation and sustainable growth) that would provide significant benefit at a strategic level and as such should be prioritised for delivery. Some examples include:

· M25 Active Traffic Management

· North Downs rail line electrification

· Redhill station additional platform

· Southern Railway train lengthening

25. To further demonstrate the link between capital investment in transport infrastructure and economic growth, the Surrey/Sussex border with Gatwick is at the hub of one of the country’s most prosperous areas [16] . This area is served by fast and frequent trains, has good motorway connections and has a major international airport giving worldwide access. Major multi-national companies have chosen to locate here, thus bringing jobs and significant economic benefits. It is critical that we reinforce the need to retain and attract these companies given the significant economic benefits they create. This means supporting the drive for excellent transport links and infrastructure improvements. Eddington points out the virtuous cycle that a critical mass of business – supported by excellent transport links – thereby attracts further investment (the "agglomeration effect").

26. Application of the current appraisal methods may not always attribute sufficient benefits to schemes supporting access to international gateways as recommended by the Eddington study. We would support changes in the way the appraisal methodology values these benefits. Changes of this nature could help shape priorities for future Local Transport Plans and Local Enterprise Partnerships (LEPs). In addition, we also believe that current methods of assessing transport schemes (while detailed) potentially undervalue or ignore certain benefits of new schemes for example, Wider Economic (or agglomeration) Benefits (WEBs). WEBs can be very significant particularly for schemes that widen the catchment area of major cities and airports. WEBs do not appear to be uniformly assessed for transport infrastructure and greater priority for valuing these benefits should be considered going forward.

27. Gatwick Airport is a private infrastructure operator (albeit a regulated one) and therefore its transport investments are assessed independently from the DfT’s appraisal methodology. However, in terms of surface access we are reliant upon highway and rail authorities for approval, development and delivery of strategic access infrastructure schemes. Given that these investments are critical to our operation any reductions in scope or delays in delivery of such schemes will have significant detrimental impacts for the airport.

28. More strategically we believe that a greater emphasis should be placed on a partnership approach for investments in transport infrastructure going forward. We would welcome the opportunity to work with the Government and explore new ideas to encourage and support private investments so that economic benefits can be realised and maximised.

29. Gatwick’s economic reach is far greater than a single local authority, district or county. We recognise the need for a single organisation to drive economic development for the wider locality around Gatwick. While much more information is needed on their final form, the formation of LEPs would appear to support this need. We have submitted evidence on this issue to the Business Committee Inquiry ‘The New Local Enterprise Partnerships’ [17] .

30. We would expect LEPs to target economic benefits more specifically at priority areas, rather than more generally (as was the case with Regional Development Agencies) within a large geographic area. A cluster of districts and counties will have greater ability to identify and promote an infrastructure scheme. However, to have any real role in transport infrastructure planning that is not constrained by geographical boundaries, it will be necessary for Government to outline strategic priorities for certain sub regions. This would ensure that in addition to LEPs promoting growth within their area of competence, any infrastructure development would be effectively integrated into wider national priorities and needs.

31. Underlying the strategic framework for the delivery of infrastructure is the planning system itself. Historically, in the UK, infrastructure has taken decades to get through the planning system. Heathrow Terminal 5 and Sizewell B being the most high profile examples. It will be difficult for the private sector to deliver the transport assets the UK economy needs without a planning process that is efficient, streamlined and follows a predictable programme supported by an overarching national policy framework. This kind of certainty is essential for planning the major investment that infrastructure providers, such as airports, undertake.

32. In our view, the previous Government took an important step towards establishing such an approach by setting up the Infrastructure Planning Commission (IPC) and the development of National Policy Statements (NPSs). The NPS would be how the Government of the day reflected its policy. The IPC would then have ensured Government policy would be delivered in a timely way. We understand the Coalition Government’s desire to change this framework. We want to work with Government to help the establishment of the new planning framework but believe that it can only be successful and effective in the context of clear national policy. For aviation this means a national long term strategic integrated transport policy. The patchy history of infrastructure development in the UK demonstrates the challenge of making sure that any new planning framework facilitates rather than discourages private sector investment in transport infrastructure.

33. Making the right investment choices is vital to safeguard Gatwick’s sustainable growth aspirations. Our new capital investment plan is central to transforming Gatwick and key to delivering our goal of becoming London’s airport of choice. Investing in infrastructure is not new to us and this year we opened our new inter-terminal transit shuttle two months ahead of schedule. We have a broad programme of investments to make Gatwick a bright and contemporary experience that provides great passenger service while being flexible enough to accommodate increasing passenger numbers. During 2011 we will be spending almost £30 million per month as nearly £1 billion is invested in transforming the airport over the five years to 2013.

34. Our current investment plan is focused on improving service for Gatwick’s passengers. We believe that it is crucially important to modernise the airport, expand our capacity, help us and the airlines run more efficient operations and improve the day to day performance of our existing infrastructure. But it does not stop here. As we continue to plan ahead for the longer term, we would welcome the opportunity to work with Government to help us achieve our goal enabling Gatwick to be recognised as London’s airport of choice, meeting the needs of airlines and passengers both now and in the future.

September 2010