Airports National Policy Statement Contents

Annex A: The strategic case

Capacity constraints in the South East

The need for additional runway capacity was justified in the NPS on the basis that demand is likely to increase significantly in the future, and all major airports in the South East of England are expected to be full by the mid-2030s.161 Gatwick and Heathrow are already operating near their limits in terms of the number of air transport movements (ATMs). They are delivering world leading runway utilisation rates, and are respectively the busiest one and two runway airports in the world (Figure 1).

Figure 1: ATMs at Significant Airports, by number of runways, 2010162

While Heathrow’s ATMs and slots are full, Heathrow is not yet ‘full’ in terms of passenger throughput at the airport (Figure 2). This is primarily because each plane that flies in and out of Heathrow is, on average, only 76% full and is not always an aircraft with the highest passenger capacity.163

Figure 2: Forecast ATMs and passenger growth at Heathrow Airport, No Expansion, % change from 2016164

Heathrow is forecast to continue to grow its passenger base by using larger aircraft, with higher occupancy of those aircraft.165 Because of this, even with no extra runway, passenger throughput is forecast to expand by 13% and 23% by 2030 and 2050 respectively. This forecast is consistent with the historical trend of passenger growth outstripping aircraft movements because of greater utilisation of existing capacity. In fact, ATMs have remained virtually unchanged since the early 2000s, while passenger growth has continued an upward trajectory and was only slowed by the global financial crisis in 2008–09 (Figure 3).

Figure 3: Historical growth in ATMs and passengers at Heathrow, Index, Base Year 1990166

Luton and Stansted have the equivalent of around one third of a runway to spare through to 2050. This means that ATMs for the London airports167 are forecast to rise by 9% by 2050 without expansion. Passenger throughput is forecast to rise by 27% out to 2050 without expansion (Figure 4).

Figure 4: Forecast ATMs and passenger growth at London Airports, No Expansion, % change from 2016168

There is greater potential to expand air traffic movements outside of London because of the available runway capacity. Better utilisation of that runway capacity means that passenger growth, without expansion, is forecast to increase by more than ATMs in the non-London regions by 2050 (Figure 5).

Figure 5: Forecast ATMs and passenger growth at non-London Airports, No Expansion, % change from 2016169

The need for hub capacity

Transfer passengers and route viability

The Government’s primary argument for hub capacity is that it boosts connectivity. This is because transfer passengers support routes out of the UK that would not otherwise be viable.170 Transfer traffic accounts for 36% of passengers at Heathrow which, according to the Chief Executive of Heathrow, John Holland-Kaye, allows “airlines to provide services economically day in, day out throughout the year.”171 Heathrow identified routes to strategically important markets, such as Mexico City, Hyderabad, Luanda, Chennai, Manilla and Santiago, that are supported by transfer passengers.172 The airlines were also strongly supportive of the hub model on the basis of it being an enabler of route viability.173 Craig Kreeger, Chief Executive of Virgin Atlantic, endorsed the value of transfer traffic, saying that it was “not unusual for us to consider a route where [only] a third of the customers will be travelling just between two cities [and that it is] the opportunity to bring in connections [which] makes many new routes suddenly available.”174

Richmond Heathrow Campaign believed that the use of transfer passengers to support otherwise unviable routes was “a myth.”175 They argued that transfer traffic simply creates higher frequencies on already dense routes rather than supporting thin routes to strategically important markets. CAA passenger survey data indicates that transfer passengers account for a higher proportion of passengers, on average, for the more densely flown routes, but still accounts for a considerable proportion of passengers across most flights out of Heathrow (Figure 6).

Figure 6: Average proportion of transfer passengers, by route density, Heathrow Airport 2016176

Airline preference for expansion

There is considerable demand from the airlines for hub capacity at Heathrow. In their evidence to us, the airlines took a united position in that Heathrow was the obvious place to expand, provided the scheme was affordable (see Annex C for more discussion).177 Craig Kreeger of Virgin summed up their position:

For the UK, it seems very clear to me that if we can find a way to do this at a reasonable economic price, close to what is being suggested, it is the right call. It is not because Gatwick is a bad place, but for whatever combination of reasons it is very clear that Heathrow is preferred.178

The three global airline alliances—Star Alliance, Oneworld and SkyTeam—all operate out of Heathrow. All three alliances previously expressed their desire to keep operating out of Heathrow, as opposed to moving to Gatwick, because it is generally more profitable and is used by more business passengers, who pay premium fares.179 Given the existing critical mass of alliances and connections, there are also fewer operational adjustments required to utilise the available capacity at Heathrow. This was acknowledged as a key consideration of the Airports Commission.180 Phil Graham, the former Head of Secretariat for the Airports Commission, acknowledged that over time it was possible an expanded Gatwick would become more successful in building up the long-haul aspect of its business and would do so more quickly if it could persuade an alliance to move.181

The future of the hub model

There is conflicting evidence as to the future importance of hub airports in sustaining connectivity. The Secretary of State told us that the hub model is not about to disappear.182 There was consensus among industry representatives that the hub model would remain an important model within the industry.183 However, evidence suggests that the industry is changing, in part due to emerging technologies, such as the development of new planes that can carry smaller numbers of passengers commercially for much longer distances (see box).184

Hub strategies of Airbus and Boeing

When Airbus originally developed the A380 it believed that large city-pairs were going to get larger and airport capacity was going to become scarcer. Airbus believed that the hub-and-spoke network model would continue to dominate and predicted airlines will continue to fly small aircraft into big hubs to fill large aircraft. Boeing, on the other hand, did not believe as firmly in this model, with its research showing that since 1990 the number of city-pairs greater than 4,800km apart had doubled, frequencies had doubled and average aircraft size had been declining. The Boeing 787-9 was subsequently developed because it saw more growth in the number of markets and routes rather than in the size of the markets. When Airbus launched the A380 in 2000, it forecast sales of 1,200. As of April 2016, it had delivered 187. There had been speculation that the A380 would be discontinued altogether but had recently been pulled “back from the brink” with a $16 billion order from Emirates. This is in stark in contrast to the Boeing 787 which, as of April 2016, had 1,154 orders. The industry appears to be making progress on this front. The A350-1000 was showcased recently by Qantas to fulfil its Project Sunrise goal of flying direct, nonstop from the east coast of Australia to both London and New York (for which Boeing is expected to offer a development of its Boeing 777-8X).

Source: D Gillen, Aviation economics and forecasting (2017), Chapter 2, p 38

Tim Hawkins of Manchester Airports Group observed that “advances in aircraft technology mean there are many more viable routes and opportunities for point to point”;185 but remarked that “we have moved to something of a middle ground, and I do not think one or other is necessarily absolutely right.”186 (Figure 7)

Figure 7: Changing dynamics in the traditional hub and spoke model187

Passenger growth

The Heathrow North West Runway (NWR) scheme would enable passenger growth to rise by 63% between 2016 and 2050, compared with a 53% rise without expansion. This equates to a net UK increase of 6% or 26 million passengers per annum (mppa) by 2050 compared with no expansion. The passenger growth with no expansion is facilitated by growth in non-London airports and higher utilisation of existing London airports. Projections show that passenger growth would be broadly similar across all three expansion options by 2050 (Figure 8).

Figure 8: Forecast passenger growth, at the UK level, by expansion option, % change from 2016188

It should be noted that the increase of 26 mppa in passenger demand growth at the UK level from NWR expansion includes an additional 16 mppa international-to-international (I-I) transfer passengers.189 Excluding the I-I transfer passengers, the NWR scheme only facilitates an additional 10 mppa terminating passengers by 2050 compared with no expansion. When compared with the other expansion options, the Gatwick option provides the most terminating passenger growth at the UK level by 2050, providing nearly 5 million more terminating passengers than the NWR scheme.

Figure 9: Forecast terminating passenger growth, at the UK level, by expansion option, % change from 2016190

One of the reasons the Government has endorsed the Heathrow NWR proposal is because it would accommodate the growth of business travel.191 Business travel is forecast to increase marginally, with or without any runway capacity constraints (Figure 10). Professor Peter Mackie and Mr Brian Pearce, former expert advisors to the Airports Commission, explained that this is because “business travel with London as origin or destination is among the least price-elastic market segments.”192 Dr David Metz and Professor Anne Graham also believed that there is “ample capacity to allow the growth of business travel in the absence of a new runway [ … ] since business travellers would pay a premium for the convenience of Heathrow.”193 Both the DfT and Heathrow have said that the demand modelling does not take account of how an expanded Heathrow might encourage and generate more travel by business passengers.194

Figure 10: Growth in UK business travel, by expansion option, change from 2016 against no expansion, mppa195

It can be seen in the figure below that the passenger growth facilitated by a NWR is accounted for almost entirely by leisure and international transfer passengers. The Government also believes it will be important for increasing tourism and the economic benefits associated with it. Lucy Chadwick, Director General at the Department for Transport (DfT), told us that leisure passengers “towards the back of the plane are bringing their tourist pounds into the UK as much as coming to do a variety of activity, so both ways there are potential economic benefits.”196 Yet outbound leisure passengers historically exceed those coming into the UK by 75%.197 The forecasts also show that an expanded Heathrow will accommodate more than three times more outbound passengers than inbound passengers. These passengers spend their money overseas and represent a “deficit” on the UK’s economic balance sheet; although there are positive economic benefits from outbound travellers as elements of several industries in the UK that exist for the primary purpose of serving outbound travellers.198

Figure 11: Net passenger growth, by passenger type, Northwest Runway vs No Expansion, mppa199

International connectivity

The NPS states that the NWR scheme is “expected to lead to more long-haul flights and connections to fast-growing economies.” Adding that, “the broader range and greater frequency of long haul flights at Heathrow Airport [ … ] would deliver benefits for UK passengers (both business and leisure) by allowing them to travel to more destinations flexibly.”200 The data below shows that at the UK level, the NWR scheme will only offer one new destination to emerging and fast-growing economies when compared with no expansion by 2050 (Table 1). The NWR will, however, increase the frequency of existing long-haul connections against a no expansion scenario (Table 2).

Table 1: Change in total number of destinations with a NWR, at the UK level201

Table 2: Change in the number of daily destinations with a NWR, at the UK level202

The NPS also states that, when compared to the other expansion options, “Heathrow Airport is best placed to provide the biggest boost to the UK’s international connectivity [and] lead to more long-haul flights.” It is also argued the build-up of long-haul services would be quicker at Heathrow.203 The Department’s forecasts show that at the UK level, the NWR scheme will offer 12 more daily long-haul services in 2050 than would be the case without expansion, nine more than the Gatwick scheme and only one more than the Extended Northern Runway (ENR) scheme (Figure 12). The build-up in long-haul services under NWR is forecast to happen quicker than under the other expansion options.

Figure 12: Forecast number of daily long-haul services, at the UK level, by expansion option204

In terms of the total number of long-haul destinations served, the forecasts show that there is little difference across all the expansion scenarios, with the NWR only offering two more destinations than would occur without expansion (Figure 13). This is not consistent with evidence provided by the Department in which they claim a NWR would provide “many more” destinations than Gatwick.205

Figure 13: Total number of forecast long-haul services, at the UK level, by expansion option206

In terms of the total number of flights to long-haul destinations, Heathrow will offer 12% or 37,000 more flights per year by 2050 than without expansion, and 20,000 and 10,000 more than the Gatwick and ENR schemes respectively (Figure 14). Again, the build-up in long-haul services with NWR is forecast to happen sooner than under the other expansion options.

Figure 14: Forecast number of annual long-haul movements, at the UK level, by expansion option207

It is a reasonable expectation that the NWR scheme would be able to consolidate on its incumbency as a hub to offer a greater number and variety of long-haul connections in the short-term and of greater frequency than the other schemes.208 Over the longer-term, the connectivity figures above show that the NWR scheme will offer the greatest long-haul connectivity benefits, but not by a significant margin when compared with the other expansion scenarios.209 This is not consistent with either the NPS210 or Department’s assessment of the connectivity benefits, in which it states there would be “very clear difference in the international connectivity.”211

Accuracy of the passenger and connectivity forecasts

There are several shortcomings in the way the Department has produced their forecasts that make it difficult to form a proper view as to the extent and profile of the connectivity benefits delivered by the NWR scheme compared with the other expansion scenarios. For example, the Department have assumed that all the capacity will be filled within two years of an opening date in 2026. However, a range of authoritative witnesses questioned the plausibility of this assumption and told us that in reality airlines would not be able to adapt212 to introduce a new fleet “the size of BA” to satisfy this demand.213 It is also inconsistent with Heathrow’s own commercial plans of phasing expansion by 5 to 10 mppa after opening.214 This means that Heathrow would not be ‘full’ until almost ten years after opening, and that the connectivity benefits endorsed by the Government for the NWR would not be realised until later in the appraisal period.

Figure 15: Passenger growth at Heathrow, Central vs Phased Scenarios, mppa215

Lucy Chadwick of the DfT said its growth assumptions are “for modelling purposes [to show the level] both airports could achieve on day one, as opposed to presuming either had any phasing plans. That is just to do the economic analysis.”216 Even if this were the logic behind the approach, it is not clear why Gatwick does not reach annual growth at any point during the projection period greater than 5.7% given that they have experienced average annual passenger growth of 7.7% with a single runway, capacity-constrained airport (Figure 16).217

Figure 16: Annual passenger growth rates, Heathrow NWR vs Gatwick Second Runway218

Further, the Department has assumed that Gatwick will largely remain a point to point airport, attracting very few transfer passengers219 and will subsequently experience virtually no growth in long-haul traffic over the appraisal period, even with an extra runway (see figure below).

Figure 17: Number of daily long-haul destinations at Gatwick, Historical vs Forecast (in red)220

Gatwick’s CFO Nick Dunn did not consider this to be a credible assumption.221 As stated above, it is also inconsistent with recent long-haul growth out of Gatwick with its capacity constrained single runway.222 With airlines operating in an environment where they have thin profit-margins, it might be reasonable to assume that at least some airlines would take up cheaper long-haul slots at Gatwick. The Airports Commission acknowledged that Gatwick could “combine point-to-point services with a hub operation, potentially of a size similar to the hubs in Rome or Copenhagen.”223 Professor Peter Mackie and Brian Pearce also believed that “a two-tier market with the alliances operating out of Heathrow and long-haul point-to-point services out of Gatwick seems a likely scenario. There is room for both to grow”.224

The Department has also assumed that any rise in airport charges will be absorbed by the airlines and not passed on to passengers. This was disputed by Professor Peter Mackie and Brian Pearce, who commented “the assumption that the aero charges can be passed through with no effects on demand and net user benefits seems to us a very strong assumption.”225 The airlines suggest that routes out of Heathrow will be unaffordable at the scheme costs currently projected for a NWR.226 A change in this assumption would reduce the demand growth anticipated for the NWR scheme, so much so that it would reduce the present value benefits of a NWR by £16.6 billion.227

The Department has also assumed passengers are insensitive to price when they make their choice of airport.228 This appears to be inconsistent with recent trends and the airlines acknowledge that passengers are increasingly price sensitive,229 particularly in an era in which online price comparison websites have become the norm. CAA data from 2012 also supports the argument that cost is an important factor when consumers consider airport choice.230 Other literature also shows that traffic demand is price elastic to varying degrees, particularly for short haul traffic where the airport charges would be very material indeed as a percentage of air fare.231 Professor Mackie and Mr Pearce believed there was “clear room for argument” with respect to this assumption and suggested the Department conduct some sensitivity analysis to test this assumption.232

Is Heathrow good for the regions?

Domestic connectivity out of Heathrow

One of the other main strategic benefits endorsed by Government in the NPS is that the NWR scheme will provide considerable benefits to the non-London regions by offering new domestic routes.233 It is an aspect of the debate that has garnered considerable support for the NWR scheme from non-London regions. As Neil Pakey of the Regional and Business Airports Group noted, “each one of [our regional member] airports have supported our position on promoting Heathrow as the solution to the south-east capacity issues.” This was based on an expectation of improved domestic connectivity out of Heathrow.234

John Holland-Kaye said that expansion “brings the opportunity for more regional connectivity to ensure that important markets in the UK, such as Inverness, Aberdeen and Belfast, maintain their connections, and that we can add connections to places such as Newquay and perhaps Liverpool.”235 Both the DfT and HAL advertised 14 potential new routes (see figure below).236

Figure 18: Heathrow Airport’s advertisement regarding domestic connectivity237


Yet the domestic route offering is forecast to be slightly lower with the NWR238 scheme and will only be expanded by discounting landing charges on domestic routes.239 Heathrow asserts that its commitment to domestic connectivity is demonstrated by its reduction in departing passenger charges on domestic routes by £10 in 2017 (>33% decrease vs 2016), adding that it will reduce the charge further to £15 in 2018 (>50% decrease vs 2016).240 Some of the airlines were critical of this measure, and told us that it was funded by a cross-subsidy from long-haul routes. Dale Keller of BAR UK said that HAL should “not be robbing Peter to pay Paul.”241 While HAL has proposed a £10m route development fund to support domestic routes, it is not clear whether HAL will continue this in perpetuity,242 or what level of discount would be required to provide enough of an incentive on the airlines to redirect their flights away from more profitable routes. The Secretary of State expects “that most, if not all, of those [domestic connections] will be commercially viable.”243 Many of the airlines are firmly of the view that domestic routes are not viable at the costs currently projected for the NWR.244

Lucy Chadwick of the DfT said that “commercial commitments from the airport itself” would help to guarantee these domestic routes.245 John Holland-Kaye stated in oral evidence that “we cannot guarantee a minimum number of domestic destinations. The reason is that it is not within our gift or control. What we can do is make sure that it is economic for airlines to fly domestic routes.”246

The Secretary of State expressed his desire to “reserve up to about 15% of slots on the new runway for domestic connections” and that “this capacity has to be spread across the day; it cannot be loads of slots at 11 o’clock at night.”247 It should be noted that the Government includes the UK Crown Dependencies, including Guernsey and Jersey, under the category of domestic connections. 248This would according to Chief Executive of International Airlines Group Willie Walsh, “be about 39,000 slots” which is “about doubling the amount of slots allocated to domestic capacity.”249 It is not clear exactly how the Secretary of State intends on reserving these slots for domestic connections. The only real option available to the Secretary of State is using public service obligations (PSOs) which are essentially a government subsidy for strategically important domestic routes.

At present, PSOs are only offered on a city-to-city basis, rather than at an airport-to-airport level and as such cannot be applied directly to Heathrow. As acknowledged by John Holland-Kaye, “the thing that is stopping the Government making those changes around PSOs, as I understand it, is that we have to comply with EU rules.”250 Dale Keller of BAR UK believed that the “real lever available to the Government is to get rid of the absurdity of £26 [Air Passenger Duty, or APD charge] on a domestic return journey. That is what is killing the domestic connectivity.”251 When questioned on whether the Government could provide further APD discounts for domestic routes, the Secretary of State conceded that “decisions about air passenger duty and how it operates sit within the Treasury [and that] the final decision sits within the budget process, so it is a matter for the Chancellor to decide what to do.”252

The Secretary of State said that the Government would “make provision through the process of the NPS and the DCO (Development Consent Order) process that follows it, to ensure that there is specific reserved [slot] capacity for regional connections within the United Kingdom”.253 Caroline Low of the DfT also said slot allocation techniques would be a backstop to guarantee domestic routes .254 However, landing slots are “owned” by the airline that operates them and it is at their discretion as to how to use them, based on their own commercial considerations.255 As Simon McNamara of Flybe highlighted, “It has to be affordable. We will take that opportunity if it is affordable and it works for us.”256 The precise way in which newly available slots are distributed is complex and is governed by EU law, which in turn implements global rules drawn up by IATA, the International Air Transport Association.257 In short, there are no provisions in the rules to guarantee domestic routes. The airlines urged caution in allocating slots specifically for domestic connections and said that there was a risk of slots being left empty if they were not commercially viable.258

Direct international connectivity from the regions

The non-London regions value the direct international connectivity from their own regions.259 The Department’s forecasts show that direct international connectivity from the regions260 would be lower with a NWR than without expansion.261 If the NWR scheme goes ahead, figures show that in 2030, there would be 74,195 fewer direct international flights per year to and from airports in the non-London regions; this increases to 161,893 by 2050 (figure below). Tim Hawkins, of Manchester Airports Group, was more optimistic and did “not think it will have a material impact on passenger volumes” and did “not see the tide going out, as it were.”262

Figure 19: Direct international connectivity, for non-London Airports, various expansion options, annual ATMs (000s)263

These figures imply that the premise that an expanded Heathrow means more connectivity for non-London airports is a false one. In recent years, non-London airports have had success in establishing their own international route offerings, for example Manchester Airport has recently established routes to Beijing, Hong Kong, Houston and Singapore. Tim Hawkins said that many regions had established those routes because “airlines think they can make money by serving that catchment directly, flying to the places where people in that catchment want to go”.264 The figures above show that these international routes will continue to grow at non-London airports but that this growth would be slowed by the NWR scheme.


The Airports Commission concluded that “all three schemes provide increased freight capacity,” but Heathrow would provide the greatest comparative benefits.265 This was based on the higher growth forecast for long-haul connectivity at an expanded Heathrow, its position in west London, the convenience of its connections to the Strategic Road Network (SRN), and the relative density of freight activity around the airport compared with Gatwick (figure below).266

Figure 20: Third-party logistics companies in the South-East of England267

The Secretary of State said that freight was “a real differentiator” between Heathrow and Gatwick.268 The NPS concludes that “the NWR scheme delivers the greatest support for freight (with) a doubling of freight capacity at the airport”. Some of our witnesses criticised the Airports Commission and the DfT for failing to assess future freight growth under the three expansion scenarios.269

The Secretary of State also stated that there is insufficient freight infrastructure at Gatwick and that “the plans are not there for the infrastructure. There is no local plan that factors in a massive investment in freight facilities.”270 Gatwick Airport CFO Nick Dunn disagreed and told us that “provision is made in our expansion plans for the expansion of our cargo facility. We already have cargo facilities at the airport. Those will be expanded with a second runway.”271 He also stated that sufficient facilities already exist in the region to cater for additional cargo.272

There is the connected issue of the impact congestion on the road networks in and around Heathrow has on efficiencies of freight operators. For example, Alex Williams of Transport for London (TfL) told us that future traffic speeds in the London boroughs adjacent to Heathrow would fall by between 4% and 5% if expansion went ahead and that the “added congestion on the road network could stifle growth.”273 HAL disputed this suggestion. They said that their Blueprint for Sustainable Freight, published in October 2017, outlines measures to ensure that even as freight volumes grow with expansion, airport-related vehicles on the road will not increase in number compared to today.274

Ultimately freight benefits are a function of the range and frequency of long-haul connectivity.275 As set out above, the long-haul connectivity benefits over the longer term are only marginally in favour of the NWR scheme over the longer term. On this basis, it is not clear how the air freight benefits for a NWR scheme would, over the longer-term and at the UK level, be substantially different from those offered by the other schemes. Nick Dunn elaborated on this, saying that “freight is not a driver of an economic outcome. It is just an output … [and] there is no special source for any particular airport. The volume or capacity is delivered by [long-haul] passenger aircraft [ … ] so the capacity will flow with the [long-haul] traffic that comes.”276 John Holland-Kaye countered that Heathrow’s freight advantage is underpinned by the “quality of the connectivity” at Heathrow compared with the other schemes.277

Wider economic benefits

The Airports Commission said that runway expansion in the South East would have wider benefits for the economy by supporting trade, enhancing productivity and strengthening business clusters around the airport278 and that it was important to “try to understand how the effect of aviation expansion might be felt as a ripple through the wider economy”.279 To do this, they commissioned PwC to model these wider benefits using a Spatial Computable General Equilibrium (S-CGE) model. This sort of approach had not been used in this context previously, having traditionally been used to assess things such as tax policy for an individual infrastructure decision in an individual part of the country.280

The Airports Commission acknowledged that this was not a “conventional economic welfare appraisal” but was “reinterpreted and extended” based on impacts identified in DfT’s WebTAG Wider Economic Impacts guidance.281 Phil Graham, former Head of Secretariat at the Airports Commission, in his evidence explained that this approach was “quite difficult to do, but that was much more innovative than the use of the standard DFT approach.”282 The final S-CGE analysis showed that there would be substantial positive GDP/GVA effects from a NWR scheme of around £147 billion over the 60-year appraisal period.283

This approach is inconsistent with the Government’s recommended WebTAG approach, which “takes a ‘welfare’ approach and aims to capture the direct economic benefits of a scheme and its environmental and infrastructure costs”.284 Because of this, the wider benefits were shifted from the economic to the strategic case following the Airports Commission November 2014 consultation. The Airports Commission’s expert economic advisers expressed concerns about the findings generated by the S-CGE model, including:

The advisors thus cautioned the Airports Commission against “attaching significant weight either to the absolute or relative results of the S-CGE approach within the Economic Case”.285

Eventually the Department removed the S-CGE analysis from the scheme appraisal on the grounds that “it is highly challenging to produce a single central estimate of the GDP impact of airport expansion using the S-CGE approach with the evidence currently available”.286 Ms. Low from the DfT also stated that “the Department was not comfortable using that form of economic modelling and presenting those numbers as part of a national policy statement.”287 Thus, when the Government announced its formal commitment to the NWR scheme in October 2016, it only referred to the direct economic benefits. The wider benefits are therefore excluded from the draft NPS.

However, these benefits are likely to be realised in some shape or form and are likely to be additional to those estimated in the central appraisal.288 What remains unclear is the scale of these benefits across the three schemes. In its appraisal, the DfT estimates wider economic benefits of between £2.0 and £3.9 billion for the NWR scheme and includes these in the economic case.289 These benefits reflect the increased business output from lower costs of production, and changes in tax revenue that occur from the redistribution of jobs across areas of the country that display different levels of productivity.290 These benefits are almost entirely dependent on long-haul connectivity growth which, as discussed above, are only marginally in favour of the NWR scheme over the longer term.291

Jobs growth

The NPS claims that Heathrow could generate up to 114,000 jobs.292 Most of these would occur during construction, with others generated by businesses drawn to the region post-expansion.293 HAL has also pledged to create an additional 5,000 apprenticeships.294 Mr Graham said that this jobs growth was particularly important for “an area of relatively high levels of deprivation for the south-east of England.”295

The Department’s WebTag guidance states that the “key to any assessment of employment effects is displacement; in other words the extent to which local or sectoral employment changes are additional at the national level, gross and net impacts respectively.” This will only occur if a transport investment increases the supply of labour. In the absence of labour supply impacts, changes in the demand for labour will lead to 100% displacement of employment at the national level. Because of this, the WebTag guidance states that “the construction and operation of transport investments and any associated multiplier effects are assumed to have no net national employment impact.”296

The displacement impacts have not been quantified as part of the NPS appraisal. It is therefore impossible to say what the real ‘net’ jobs increase from a new NWR would be and whether, particularly during construction, there might be a cost in terms of labour availability elsewhere in the country.297

Airline competition

Airline competition at Heathrow is relatively limited. International Airline Group (IAG) operators currently account for more than half of the slots (figure below). Passengers seeking a direct flight from Heathrow sometimes have no choice but to fly with an IAG airline. For example, 52 short-haul routes (including to Glasgow, Dublin and Barcelona) and 21 long-haul routes (including to Bangalore, Buenos Aires and Chennai) are only operated by IAG. The remaining airlines at Heathrow are comprised of almost entirely full-service carriers.298 Willie Walsh told us that Heathrow has been a competitive market and that IAG’s current position was developed as a consequence of purchasing slots from other airlines over time. He said that in many instances IAG (and BA before it) was the only company interested in buying the slots.299

Figure 21: Peak weekly slot allocation at Heathrow Airport, summer 2017300

The Department states that one of the key benefits of expansion at Heathrow is that it will increase airline competition:

Expansion at Heathrow Airport would increase the availability of services, and increase competition between airlines. This would lower fares that passengers can expect to face relative to no expansion, leading to significant benefits to business and leisure passengers and the wider economy.301

Professor Peter Mackie and Brian Pearce supported this view and stated that “the first effect of more capacity at Heathrow will be to permit increased competition between the alliances and other existing carriers.” They added that:

[ … ] given the once in a generation possibility of entering the Heathrow market at or above minimum efficient scale under the new entrant slot allocation rules, entry to serve a mixture of UK domestic, European capitals and sun routes is credible.302

The extent of airline competition at an expanded Heathrow depends, to a large extent, on the future level of airport charges. Given the cost risks associated with this scheme, there is a reasonable chance that airport charges will increase in real terms, potentially limiting the viability of new slot opportunities to established full-service carriers. This was acknowledged as a possibility by the Airports Commission.303 Airport charges already prevent low-cost carriers from feasibly entering the market at Heathrow and Sophie Dekkers of EasyJet conceded that “it would be very difficult for it to work [within their business model]” were airport charges increased.304 Willie Walsh believed that recent history at Heathrow reflected the impact airport charges can have on airline competition:

All you have to do is look at the history of what has happened at Heathrow. Flybe used to operate at Heathrow, but it sold its slots because it could not make money there. BMI went out of business because it could not make money at Heathrow. Lots of airlines trying to operate at Heathrow have not been able to make money because the costs associated with Heathrow are too high. If they could, I have no doubt that airlines that were there in the past would still be there today.305

A further concern is that the current EU Slot Regulation may potentially limit the scale of airline competition at an expanded Heathrow. In a December 2016 speech CAA Chief Executive Andrew Haines explained:

The EU slot rules, which require 50% of new slots to be allocated to new competitors at a particular airport, didn’t foresee major new capacity being built (e.g. new runways) at a highly-congested airport like Heathrow … And the nature of these regulations act in some ways as a barrier to strong competition to the big incumbent. [Rather] it encourages a distribution of access across many players who may not have the scale or appetite to present real competition to the big home carriers.306

Even if new slots at Heathrow were to be distributed in a manner more conducive to improved airline competition, Willie Walsh opined that “what you will see going forward is that, when more slots are made available, airlines will apply for slots and the same airlines that will apply for new slots will, in time, look to sell those slots if they believe they can make an economic return on the sale.”307

Surface access

One of the reasons the draft NPS endorses the NWR scheme is because of its favourable position regarding surface access.308 It states that one of NWR’s comparative advantages over Gatwick is that it is “a more accessible location” and has “more varied surface access links”.309 Specifically the NPS states that:

Access to Gatwick relies on the M23 and the Brighton Main Line, which means it serves London well but makes it less convenient for onward travel to the rest of the UK. It is also less resilient than Heathrow Airport. Heathrow Airport has advantages over Gatwick Airport with its greater integration into the national transport network, benefitting both passengers and freight operators.310

The Airports Commission concluded that “Heathrow’s performance against the surface access objectives is marginally stronger than Gatwick’s.” Gatwick and Heathrow currently have broadly equivalent catchment populations. The population within 30 minutes of Gatwick is 530,000 and is 25 million within three hours of it; this compares with Heathrow at 230,000 and 28 million respectively. Heathrow’s catchment population is expected to expand off the back of HS2 and Crossrail, but its advantage is also dependent on rail projects which at this stage remain uncommitted. The Airports Commission concluded that “Gatwick would see more available capacity on key transport links serving the airport by 2030,” and “congestion issues are anticipated to be more severe on the links serving Heathrow”.311 The strategic surface access arguments made by Government in favour of the NWR scheme are dependent on many other variables, particularly around the timely and appropriately costed delivery of required schemes. These elements are discussed at length in Annex F.

161 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 21

162 Jacobs and Leigh Fisher, 14. Operation Efficiency: Phasing and Facilities Review, June 2015

163 Heathrow Airport Limited, Regulatory Accounts, Year Ended 31 December 2016

164 Department for Transport, UK Aviation Forecasts 2017, October 2017

165 The Department for Transport’s updated forecasts estimate Heathrow’s average loads will rise from around 160 passengers in 2016 to 190 in 2050 in the Do-minimum case and 180 in the NWR option; Q40; Q512

166 Department for Transport, UK Aviation Forecasts 2017, October 2017

167 Heathrow, Gatwick, London City, Stansted and Luton.

168 Department for Transport, UK Aviation Forecasts 2017, October 2017

169 Department for Transport, UK Aviation Forecasts 2017, October 2017

170 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 21; Q455

172 Heathrow Airport Ltd (NPS0086)

173 Q121

174 Q386, Q324

175 Richmond Heathrow Campaign, DfT Consultation Submission, December 2017

176 CAA Passenger Survey Data, 2016

177 Q139, Qq577–78; Qq586–87; Q593; Q632

178 Q586

179Big air alliances rule out move from Heathrow”, Financial Times, 11 August 2013

181 Q18

182 Q512

183 Q119,120

185 Q118

186 Q118

187 Supplied by the Teddington Action Group.

188 Department for Transport, UK Aviation Forecasts 2017, October 2017

189 That is, passengers who transfer via a UK airport with their origin and destination outside the UK

190 Department for Transport, UK Aviation Forecasts 2017, October 2017

191 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 21; Qq464–65

192 Professor Peter Mackie and Brian Pearce, Reply to Transport Select Committee letter of 16/1/2018

193 Dr David Metz (NPS0008)

194 Q476; Heathrow Airport Ltd (NPS0086)

195 Department for Transport, UK Aviation Forecasts 2017, October 2017

196 Q466

199 Department for Transport, UK Aviation Forecasts 2017, October 2017

200 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 21–22

201 Department for Transport, UK Aviation Forecasts 2017, October 2017

202 Department for Transport, UK Aviation Forecasts 2017, October 2017

203 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 31; Q92

204 Department for Transport, UK Aviation Forecasts 2017, October 2017

205 Q31

206 Department for Transport, UK Aviation Forecasts 2017, October 2017

207 Department for Transport, UK Aviation Forecasts 2017, October 2017

208 Qq460–61

209 Q2, Q92

210 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 22

211 Q59

212 Q141, Q143

213 Q81

214 Q339

215 Department for Transport, UK Aviation Forecasts 2017, October 2017

216 Q487

217 Gatwick Gatwick Airport Financial Results, March 2017

218 Department for Transport, UK Aviation Forecasts 2017, October 2017

219 Department for Transport Revised Draft Airports National Policy Statement, October 2017, p 22

220 Department for Transport, UK Aviation Forecasts 2017, October 2017

222 Department for Transport, UK Aviation Forecasts 2017, October 2017

224 Professor Peter Mackie and Brian Pearce, Reply to Transport Select Committee letter of 16/1/2018

226 See Annex C for full discussion.

227 Department for Transport, Further Review and Sensitivities Report, October 2016

228 Q84

229 IATA (NPS0080)

231 Airport Cooperative Research Program, Understanding Airline and Passenger Choice in Multi-Airport Regions, ACRP Report 98, (2013)

232 Professor Peter Mackie and Brian Pearce, Reply to Transport Select Committee letter of 16/1/2018

233 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 24

234 Qq122–23, Q131

235 Q323

236 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 25

237 yourHeathrow, Twitter Post, 5 February 2018

238 Department for Transport, Aviation Forecasts, October 2017

239 Q71

240 Heathrow Airport Ltd (NPS0055)

241 Q617

242 Q337

243 Q479

244 IAG (NPS0060); LACC (NPS0043); Q139; Q625

245 Q483

246 Q335

247 Q478

248 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p.25

249 Q623

250 Q336

251 Q618

252 Q484

253 Q478

254 Q72

255 Heathrow Airport Ltd (NPS0086)

256 Q619

257 For more information see House of Commons Library Briefing Paper No CBP 488, Airport slots, 12 June 2017

258 Q623

259 Q72

260 That is, a direct connection from a non-London UK destination to an overseas destination.

261 Airports Commission, Strategic Fit: Forecasts, July 2015; Q70

262 Q127

263 Department for Transport, Aviation Forecasts, October 2017

264 Q151

265 Airports Commission, Final Report, 2015, p 4

266 Q14; Q73

267 Airports Commission, Final Report, 2015, p 257

268 Q461

269 Q99

270 Q485

271 Q99

272 Q100

273 Q277

274 Heathrow Airport Limited (NPS0078)

275 Q98

276 Q99

277 Q343

278 Airports Commission, Economy: Wider Economic Impacts Assessment, 2015

279 Q6

280 Q29

282 Q28

287 Q10

288 Q10

289 Department for Transport, Updated Appraisal Report, October 2017, p 26

290 For more information see: Department for Transport, Wider Economic Impacts Appraisal, September 2016

291 Q60; Q99

292 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 24

293 It should be noted that this falls within a range down to 57,000 given the uncertainties associated with the type of airport and the size of the airport employment catchment areas

294 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 24

295 Q3

296 Department for Transport, Appraisal of Employment Effects, September 2016, p 2

297 Department for Transport, Appraisal of Sustainability, October 2017, p 73

298 Civil Aviation Authority, CAP 1383, Strategic Themes for the Review of Heathrow Airport Limited’s Charges (“H7”), March 2016

299 Q624

300 ACL, Heathrow Airport—Summer 2017, 17 March 2017

301 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 23; Q465; Q517

302 Professor Peter Mackie and Brian Pearce, Reply to Transport Select Committee letter of 16/1/2018

303 Airports Commission, Business Case and Sustainability Assessment, July 2015, p 117

304 Q621

305 Q589

306 Andrew Haines, Chief Executive, Civil Aviation Authority, GAD speech, “The future of open skies post-Brexit”, 1 December 2016

307 Q624

308 Q31

309 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 25

310 Department for Transport, Revised Draft Airports National Policy Statement, October 2017, p 26

311 For full discussion, see: Airports Commission, Final Report, July 2015, p 160–166

Published: 23 March 2018