Transport CommitteeWritten evidence from the City of London Corporation (AS 105)


1. The City of London’s leading position as an international finance and business centre is heavily dependent on it being easily accessible not only from across the UK but, crucially, also from all over the world.

2. Aviation services remain crucial to the wellbeing of London and the UK economy, and the City welcomes the creation of the Independent Commission to be chaired by Sir Howard Davies to consider options for maintaining this country’s status as an international hub for aviation. The City Corporation will shortly publish research to build on the previous City-backed studies into the importance of aviation set out below. This new piece of work is expected to be available later this year in order to feed into the Davies Commission.

3. The City of London Corporation is not in a position to respond fully to all the questions posed by the Committee but is able to share the initial findings from forthcoming research1 as they relate to the importance of aviation to the economy and the need for a new hub airport.

Previous research into the importance of aviation

4. The City Corporation first commissioned research into the importance of aviation in 2002. The study2 identified that the provision of air services in London that would compete with and outperform services available in other financial centres are essential if London is to remain globally competitive. This was updated by a further study by published in July 20083 which looked further at the extent to which City businesses relied on air travel. Although it did not go as far as placing a monetary figure on the value of aviation to the UK economy, this research demonstrated that, at the time, 64% of businesses regarded air travel as critical or very important for internal company purposes, and that 73% considered aviation critical or very important for meeting external clients or service providers. In addition, 82% of businesses regarded Heathrow as critical or very important to their operations, making it the most highly-valued airport in the South East by some margin. This was largely attributed to the wide range of destinations served and the frequency of the service. The research concluded that that this hub airport plays a key role in the functionality of the financial services industry in the UK.

5. The 2008 report concluded that, in recent years, Heathrow had stagnated and lost some of its market share to European competitors. This is reflected in the fact that, while the frequency of services from Heathrow rose between 2003 and 2008, the number of destinations to which it provided air services declined and, in comparison with other major European hub airports where additional runways have been built to meet rising demand, the rate of expansion has been noticeably slower. Furthermore, 50% of businesses surveyed regarded road and rail access to London’s airports as worse than that of airports in other major cities.

6. Whilst recognising the importance of Heathrow to London’s business community, both pieces of research highlighted major weaknesses in the airport’s management. The 2002 report indicated that there was real concern about time wasted at airports waiting for security checks reflecting the expense to companies of having staff unable to work because of overly-long airport security processes. The 2008 report also identified that inefficient security procedures led to passenger delays and also prevented many flights leaving Heathrow at the time scheduled.

7. The 2008 research4 identified some of the environmental concerns inevitably attached to any of the expansion options, in particular aircraft noise disturbance and local air quality. This aspect has also been recognised by the Corporation as important.

The importance of a hub airport

8. The need for businesses to travel to and receive visitors from emerging countries will increase over time as their economies grow. The principal concern, therefore, is the extent to which London will be able to keep pace with its competitors in future and this is the main issue considered in the forthcoming York Aviation research. The vast majority of London’s business related air connectivity beyond Europe is provided by Heathrow and in terms of the BRICS countries (including Hong Kong), Heathrow provides 95% of the flights and 88% of the seats5.

9. A key reason why services to the emerging economies tend to be concentrated at Heathrow is its status as a hub. Often routes to individual cities within emerging countries are too small to support direct services without feeder traffic through a hub. The dependence of particular markets on transfer traffic overall varies considerably, with routes to countries such as Brazil, China, India and Mexico far more dependent on transfer passengers than routes to countries such as Pakistan, Poland or Turkey. In terms of services from Heathrow, these are far more dependent on transfer traffic than routes from Gatwick or, indeed, the other London airports6. This reflects the ability of Heathrow to function as a hub and the ability to operate such routes from a hub airport.

10. In some markets from Heathrow, transfer passengers make up a very high proportion of overall demand; as high as 65% in the case of the route to Mexico City from Heathrow. Other countries with particularly high dependence on transfer traffic from Heathrow include the Czech Republic, India and South Africa. It is also evident that British Airways is more dependent on transfer passengers than other airlines at Heathrow. For example, over half of BA’s passengers on Heathrow routes to Brazil, Egypt, India, Morocco, South Africa and Taiwan are making transfer connections onto such flights. The ability of Heathrow to function as a hub is a factor in securing a wider route network than would otherwise be the case. This is relevant to considering the extent to which Heathrow will be able to continue to provide a gateway for the opening up of such point to point services in future.

11. Capacity at Heathrow has been constrained for some time, running at 97–98%. Nevertheless, carriers at Heathrow have been able to adapt their networks so that, in overall terms, key business connections are maintained. This, however, has been at the expense particularly of UK domestic connections and connectivity to Europe from Heathrow. This is where other London airports have made a particular contribution, with a particular increase in the range of European services overall across the London airports.

12. It is clear that the scope for enhancing the range of services to the emerging economies at Heathrow is ultimately limited by the shortage of slots. The extent to which it will be possible to introduce services to newly emerging world cities will be limited by the need for these services themselves to be supported by feeder traffic, largely from the European and domestic network but also by services from the US, which also provide feeder traffic onto routes to Asia and to Africa.

13. Development of new direct services by airlines will be influenced by the nature of airline alliances. To the extent that services need to be supported by hub feed at both ends of a route, a foreign airline may favour service to an alliance hub, such as Frankfurt for Star Alliance members or Paris/Amsterdam for Skyteam members. This has to date been a factor in the development of direct routes to China as, whilst Cathay Pacific of Hong Kong is a One World member allied to BA, China Airlines, China Southern and China Eastern are all Skyteam members and Air China a member of Star Alliance.


14. Whilst to date it would appear London has not lost connectivity in either absolute or relative terms because of capacity constraints, this may not continue to be the position as economic power shifts to new centres and demand for air travel to new routes increases. This underlines the importance of the work of the Davies Commission to find an urgent long-term solution which enables the UK to keep pace with the connectivity provided by competing centres’ airports. It is suggested a greater range and frequency of connections to key cities in the emerging economies is more likely to develop through a focus on hub capacity than relying on non-hub airlines to develop services feeding their own hubs overseas.

26 October 2012

1 The Importance of Global Aviation Connectivity to London”, York Aviation, published by the City of London Corporation, October 2012

2 “The Use of Aviation Services in the City of London and the Central London Business District and the Implications for Future Aviation Policy”, Oxford Economic Forecasting, published by the City of London Corporation, December 2002.

3 Aviation Services and the City”, York Aviation, published by the City of London Corporation, July 2008.

4 Aviation Services and the City”, York Aviation, published by the City of London Corporation, July 2008

5 The Importance of Global Aviation Connectivity to London”, York Aviation, published by the City of London Corporation, October 2012.

6 It is only on the route to Mexico that BA relies on a reasonable (28%) proportion of transfer passengers at Gatwick. Other airlines do not use Gatwick as a hub to any great extent either, with only 6% of passengers in the relevant markets transferring onto flights at Gatwick with other airlines.

Prepared 31st May 2013