The battle of the London airports is heating up. Although the Airport Commission, headed by Sir Howard Davies, is not due to give its final recommendation until after the 2015 general election, the two big contenders locked horns last month over their consultation processes and noise impacts.
At this stage, Heathrow has the loudest voice, and perhaps the most business support, but Gatwick provides a real, and under-appreciated, challenge. As more evidence is produced, the underdog may yet win the prize. Either way, the competition between them will sharpen the debate and likely result in a better outcome.
Believers in the benefits of competition should also consider the long-term implications of a three-runway Heathrow and a one-runway Gatwick compared to the alternative of a two-runway Heathrow and a two-runway Gatwick. There are obviously different noise and traffic implications of the two scenarios which will be modelled and compared in the next phase of work by the Davies Commission. But it will also be important to consider the impact on passenger choice, costs and quality of a competitive duopoly for London airport users versus a megahub monopoly. Longtime airport users in London can attest to the significant improvements in passenger experience at both Heathrow and Gatwick that competition has brought through the separation of ownership and investment choices.
I spent 4 years as chief economist for British Airways in the 1990s and took part in the public hearings to build Terminal 5 at Heathrow. Then the debate revolved around demand projections, noise impacts and the role of Gatwick and Stansted to provide ‘overflow’ capacity. It is striking how the debate has changed. The dominant airline strategy then was expansion at hubs, whereas the higher growth since then has been in point-to-point passenger travel. The new generation of aircraft that can fly long distances economically with smaller planes will accelerate this trend. Heathrow, Gatwick and Stansted were all owned by BAA then and there was no real competition between them.
Since the Competition Commission broke that monopoly, the emergence of low-cost carriers – especially at Gatwick under its new owners – has meant that passenger demand has grown faster than forecast. The interim report of the Davies Commission used a more sophisticated approach to forecasting demand and produced ranges that account for uncertain developments in airline strategies. It clearly demonstrated that an additional runway in the southeast of England is needed under all plausible scenarios. It has also ruled that it will give the go-ahead to only one airport. This sharpens the contest.
There are clearly advantages to large hub airports, especially for cities with small domestic markets. For Singapore or Dubai, it is imperative to have an airport large enough to attract transfer traffic on which the small domestic market can piggyback. But London is the very opposite of Singapore or Dubai. It is the quintessential international city. It has a big domestic market of business and leisure travellers who want to fly from London. It also attracts large numbers of business and tourist visitors from other countries who want to come to London, not transfer through it. The larger this so-called ‘origin and destination’ traffic is, the smaller will be the benefit to a city of attracting transfer traffic. According to the Airport Commission, London is the largest aviation market in the world (in terms of passenger numbers) and the largest ‘origin and destination’ market. In other words, like New York, London is both large enough and international enough to support two international airports. It does not need to consolidate capacity in a single megahub – whether at Heathrow or in the Thames estuary – in the hope of attracting more transfer passengers.
There are also environmental and security reasons for preferring two competing airports to one very large one and there is still much analysis to do before the Davies Commission makes its final recommendation. But its decision should not be based on a one-for-one choice between another runway at Heathrow or Gatwick. Rather it should undertake a system-wide analysis between the two alternative configurations – competitive duopoly and megahub – to address London’s need for additional airport capacity.
This commentary appeared in The A-list blog on FT.com on 14th February 2014