A subcommittee of the UK cabinet is expected to meet this week to decide whether to endorse the Davies Commission’s recommendation that a new runway be built at Heathrow airport rather than Gatwick. After such an elaborate study, the expectation is that Heathrow will be given the go-ahead. This would be a costly and high-risk decision.
The final verdict will be made by Prime Minister David Cameron. He had promised to give his decision by the end of the year but the deadline has now been delayed yet again.
The commission produced an estimate of nearly £150bn in economic benefits for Heathrow against around £90bn for Gatwick. It recognised that such estimates are highly uncertain because the benefits stretch far into the future and depend on the unpredictable dynamics of a competitive global industry. For example, if a Gatwick expansion caused one airline alliance to shift its London operations from Heathrow to Gatwick then the benefit calculation would change significantly. A risk-minimisation approach is the prudent way to compare highly judgmental forecasts. Noise footprints and cost estimates are more robust than benefit estimates, and should be given more weight in such comparisons. On both grounds, Gatwick wins over its bigger rival by a wide margin.
Consider noise. Because the Gatwick area is less densely populated, only 3,200 people are currently affected by its airport noise, compared with 240,000 at Heathrow. Even with quieter planes, expansion at the latter would affect another 300,000 people, compared with an incremental 18,000 people with Gatwick. MPs on the environmental audit select committee last week said that Heathrow expansion should not be approved until it can prove that it can meet current environmental standards. Since the airport’s case depends on airlines replacing old planes with new ones, improvement will take many years. Gatwick already meets EU standards and would continue to do so with a new runway.
The cost advantages of the smaller airport are equally clear. A second runway there would cost around £8bn compared with around £18bn for a third runway at Heathrow. One reason that the latter’s expansion is so expensive is that it would require the diversion and tunnelling of the M25. This would create massive disruption of traffic that is unconnected with the airport. By contrast, the Gatwick expansion could be completed four years earlier because it would be built on set-aside land with very little collateral disruption.
Whichever airport is chosen, its cost has to be financed by passengers, taxpayers or both. Gatwick has committed to self-finance its £8bn investment through airline charges without taxpayer support. This would raise its charge to £12-£15 per passenger, which is still lower than Heathrow’s current level. The latter’s airline charges would rise to £28-30 per passenger and it would also require nearly £6bn of taxpayer support. Willie Walsh, the chief executive of IAG which owns British Airways as well as Iberia, has already said that the company would refuse to pay such an increase. It would be ironic if Britain’s flag carrier shifted its long-haul hub to the uncrowded airport in Madrid just as the Heathrow expansion came on line.
There are also competitive benefits to the UK from having two gateway airports serving London, each with two runways, rather than one megahub with three runways. These benefits should be set against the highly speculative argument that London needs a megahub to compete against the Gulf airlines in attracting transfer traffic. That contest is already over. We cannot match their cheaper cost of land-intensive runways, nor their willingness to incur the noise of 24-hour operations. Fortunately, a global destination city the size of London does not need large transfer flows to make its routes viable.
The airports commission did a heroic, but ultimately unpersuasive, job of producing a benefit-based recommendation for expansion at Heathrow. The final judgment rightly belongs in the political arena where broader considerations of deliverability and financial risk as well as the weight given to environmental factors can be incorporated. Britain desperately needs more airport capacity in the south-east. The cabinet committee should choose the lower-cost, less risky and greener option to provide it; namely Gatwick.
This commentary appeared in The Exchange on FT.com on 9th December 2015