Heathrow report: Lack of airport capacity costs UK £14bn

Heathrow chief executive Colin Matthews: "It is time to look at the options, although none are easy."

Related Stories

A lack of capacity at Heathrow is costing the UK economy £14bn a year in lost trade, according to a report commissioned by the airport.

That figure could rise to £26bn a year by 2030, the report said.

Heathrow bosses are keen to see a third runway built at the west London airport, but the government has ruled it out for the time being.

The government has asked a commission headed by Sir Howard Davies to advise on future UK airport capacity needs.

The Davies Commission is expected to present an interim report to the government by the end of 2013, with a full report due in the summer of 2015 - after the next general election.

Heathrow's report, "One hub or none", was prepared for the airport by consultants Frontier Economics. It was commissioned to inform Heathrow's response to the Davies Commission but is not its formal submission.

Analysis

I've just looked back through my notes from the start of the year.

"Dead and buried" was the phrase a senior person at the DfT used to describe to me a third runway at Heathrow. Just a few months after that Justine Greening, the Transport Secretary at the time, effectively told me that she was against the idea.

What a difference a few months and some expensive lobbying makes. Justine Greening has been unceremoniously shunted out of the way and the idea is now firmly back on the table. It's also backed by some big hitters across the business world, unions, aviation bosses and many politicians.

But don't let that fool you into thinking the diggers will move in any time soon, if ever.

First, there's the rabid opposition it would face from the likes of London Mayor Boris Johnson, the Lib Dems and the hundreds of thousands of Londoners who'd be affected by the noise.

Second, Sir Howard Davies might not actually recommend it when he reports back in 2015, and even if he does, the next government will have to back it. If it clears all those hurdles, Heathrow's owners then say it will take at least eight years to get planning permission and finally build the thing.

Hub airports bring passengers from other airports so they can transfer onto flights to their final destination. About one third of passengers flying into Heathrow transfer onto other flights.

The report said that the choice for the UK was not between two hubs or one, but one hub or none.

'Out of sync'

It said only one airport could operate as a hub in the UK and said the government could either do nothing and "let the UK fall behind competitors", add additional capacity at Heathrow, or close Heathrow and replace it with a new larger hub airport.

Heathrow chief executive Colin Matthews said: "If anyone was still in doubt about the importance of aviation to the UK economy, today's report should lay those doubts to rest.

"The new work we are publishing today shows that only a single hub airport can meet the UK's connectivity needs and the choice is therefore between adding capacity at Heathrow or closing Heathrow and replacing it with a new UK hub airport."

He told the BBC: "Transfer traffic is the mechanism that makes routes economically viable. If you could not offer the feed, a lot of routes would not be possible."

However, critics said the report lacked credibility. Joss Garman, political director of Greenpeace, said: "This completely biased report from the owners of Heathrow is out of sync with other more independent reports on London's connectivity, and it simply recycles the aviation lobby's tired and discredited arguments.

"The case for a third runway has never been weaker, and it's time the aviation industry woke up to the reality that Heathrow expansion will never happen because it would be political, economic and environmental madness."

He pointed out that the report referred to Heathrow falling behind Paris and Frankfurt on flights to mainland China, but if you included Hong Kong, then London had more flights to China than any other European rival.

Start Quote

The Airports Commission needs to look to the future and not to Heathrow's monopoly past”

End Quote Gatwick Airport statement

The report looked at the number of connections and passengers that there would be if there was unconstrained capacity at the UK's hub airport and compares this with the number of passengers that there would be without any new runway capacity.

It then calculated the level of trade that is being missed out on because of that connectivity gap.

But John Stewart, chair of the campaign group Hacan, said there was no evidence that London's economy would lose out if Heathrow did not expand as a hub.

"The reason for this is London's importance as a destination to business people," he said.

"Heathrow has the largest number of terminating passengers of any airport in the world. It therefore does not need the extra passengers an expanded hub would bring to make it commercially viable to operate lots of flights to key business destinations."

Noise restrictions

On Tuesday, London Mayor Boris Johnson met Sir Howard, stating his opposition to a third runway at Heathrow, and putting forward the case for a Thames estuary airport.

The all-party 2M Group, which represents more than 20 councils close to Heathrow, has said it will tell the Davies Commission that loosening restrictions on Heathrow's existing runways would destroy the quality of life for people living near the flight path.

A Department for Transport spokeswoman said that the UK was one of the best connected countries in the world, and maintaining its airport network was vital to the economy.

"The strength with which the different options for achieving this are put forward shows precisely why we were right to set up a proper independent review with the timescale to consider fully what is in the country's interest," she said.

A report by the Policy Exchange think tank last month supported replacing Heathrow's existing runways with four new ones immediately to the west of the current site as the best option for increasing airport capacity in the UK.

It also advocated much tighter restrictions on operating hours, permitted aircraft type and the steepness of take-off and descent, in order to reduce noise pollution over London from current levels.

Other options to expanding Heathrow include building a second runway at Gatwick or Stansted, expanding Luton, or replacing Heathrow with an airport in the Thames Estuary, as favoured by Mr Johnson.

Gatwick Airport responded to Heathrow's report by saying: "A new runway at Gatwick could be more affordable and practical than other options and give passengers a greater choice of routes to key destinations. Critically, we would have a significantly lower environmental impact compared to an expanded Heathrow.

"The Airports Commission needs to look to the future and not to Heathrow's monopoly past. It will need to decide whether a competitive airports' network in London, delivering more passenger choice, connections, convenience and lower prices, is more preferable to propping up an outdated and unnecessary expanded Heathrow."

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    IRISH HOUSE PRICES 11:50:

    There's been a surge in house price inflation in the Republic of Ireland. Irish house prices outside Dublin grew at their fastest rate in 7 years. Rises were typically 5% in the year to July, up from 3% previously. In Dublin, though, wow. Prices were up 23% in the year to July, a slight fall from the 24% rises recorded in the year to June. Despite that rock 'n' roll growth, prices in Ireland remain more than 40% below the pre-crash peak.

     
  2.  
    LAGARDE PROBE 11:25:
    Christine Lagarde (27 August 2014)

    The IMF head, Christine Lagarde, is under official investigation for negligence. The French corruption probe dates back to her time as France's finance minister. She faces questions about her role in a 400 million-euro (£320m) payment to former Adidas owner Bernard Tapie. Ms Lagarde says she will appeal against the decision to put her under formal investigation.

     
  3.  
    MORTGAGE LENDING 11:08:
    The Boat House, where Dylan Thomas and his wife Caitlin lived between 1949 and 1953

    Finally with those CML stats: Wales. The number of first-time buyers rose by nearly a third in the second quarter of this year. Their typical mortgage was £99,000, and their typical household incomes were £30,400.

     
  4.  
    RUSSIAN MCDONALD'S 10:47:
    McDonald's

    Russia continues to get tough on Western businesses operating in the country. A Russian court has ordered a McDonald's restaurant branch under the Kremlin walls to close for 90 days for not meeting sanitary standards. Russia has closed down other McDonald's outlets this week the same reason.

     
  5.  
    MORTGAGE LENDING 10:33:

    And what about Northern Ireland? The CML says things have been busy there too. As a result, the typical mortgage size for first-time buyers was £78,000 in the second quarter of the year, compared to £72,000 in the previous quarter. The typical first-time buyer household had a gross income of £26,300.

     
  6.  
    LAGARDE PROBE? 10:16:

    The Reuters news agency is reporting that the head of the IMF, Christine Lagarde, has been put under formal investigation for "negligence" in a French political fraud investigation case. The agency cites a source "close to Ms Lagarde".

     
  7.  
    MORTGAGE LENDING 10:09:
    Houses

    More CML stats, this time about Scotland. Mortgage lending to home buyers jumped by 32% between the first and second quarters of the year. The typical loan for first-time buyers was £95,000, up from just under £90,000 in the first quarter. And the typical gross income of a first-time buyer household was £32,300.

     
  8.  
    MORTGAGE LENDING 09:52:

    Figures on regional mortgage lending have been published by the Council of Mortgage Lenders (CML) They look at London, Scotland, Wales and Northern Ireland in the second quarter of the year. A few tasty facts about greater London. The typical gross income of a first-time buyer household was £55,000. 63% of first-time buyers bought properties costing more than £250,000. And first time buyers typically put down 25% deposits, more than elsewhere.

     
  9.  
    RBS FINE 09:32: BBC Radio 4

    RBS is very sorry for the poor mortgage advice it gave to 30,000 mortgage customers in recent years. Lloyd Cochrane, head of mortgages at RBS and its subsidiary NatWest told the Today programme that it reckons about 4% of those may have been disadvantaged financially. That's about 1,200 people. "We did not do a good enough job [but] very few customers lost out as a result of this," he said.

     
  10.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "RBS's Lloyd Cochrane tells me the bank spent many months retraining staff; management "takes responsibility" for selling mistakes."

     
  11.  
    FOXTONS 08:56:
    Foxtons share price graph

    Shareholders don't seem happy about Foxtons' special dividend or higher profits. The shares are down almost 6%. Why? Perhaps some profit takers are among them. Or perhaps it's the warning that asking prices in London are dropping and it expects to see a slow down in transactions in the second half.

     
  12.  
    SCOTTISH INDEPENDENCE 08:36:
    No campaign stuff

    Business hasn't been shouting about the matter. Views have been dripped out. Bigger names who have spoken up include Douglas Flint, head of HSBC, against, and Standard Life, also against to the extent the business said it would consider leaving the country if it chose independence.

     
  13.  
    MARKETS UPDATE 08:13:

    Shares in London have begun higher. The FTSE 100 is up 48 at 6,822.76. In Frankfurt, the Dax is up 29.83 at 7106.70 and in Paris the Cac 40 is up 51.30 at 4393.41.

     
  14.  
    HEADLINES
    • RBS and NatWest fined £15m for bad advice
    • Businesses doubt Scottish independence
    • Foxtons earnings jump after strong house sales
     
  15.  
    BANANA MERGER 07:52:
    Fruit

    An update on Fyffes and Chiquita's attempt to merge and complete their corporate fruit salad. They say they hope to save $60m a year in overheads. Their official name for this plan is "the Combination". The capital C is vital, of course.

     
  16.  
    RBS FINE 07:38:

    All this was happening four years after the government bailed out RBS, years after it had started eating humble pie for mis-selling payment protection insurance, and after it had been discovered committing other misdemeanours. The FCA said: "Only 2 of the 164 sales reviewed were considered to meet the standard required overall in a sales process."

     
  17.  
    CARS TO RUSSIA 07:37: BBC Radio 4

    Sanctions have not dampened the enthusiasm of car firms to sell their vehicles in Russia - the world's seventh biggest car market. The Moscow Motor Show is getting underway and fully bullet-proof cars are on offer. Paul Willcox, chairman of Nissan Europe, told the Today programme he was taking the long view with nine new models being launched. "Our plan is in the next three years to grab 10% of the market," he said.

     
  18.  
    RBS FINE 07:23:
    RBS pillar sign

    And there's more: "In the firms' own mystery shopping there were examples of advisers giving personal views on the future movement of interest rates," says the FCA. "This was highly inappropriate and may have resulted in the borrower being sold the wrong type of mortgage for them."

     
  19.  
    RBS FINE 07:21:

    What did RBS do wrong? "Affordability assessments failing to consider the full extent of a customer's budget when making a recommendation, failing to advise customers who were looking to consolidate debt properly and not advising customers what mortgage term was appropriate for them," says the FCA.

     
  20.  
    FOXTONS 07:16:

    Foxtons, the London estate agency that put the F in flashy, has benefitted from the past year's surge in home sales. Its half-year earnings are up 16% to £73m, and its half-year profits jumped 57% to £23m. That's a huge profit margin. So much so that shareholders are getting a special half year dividend on top of the normal one - £13m in all.

     
  21.  
    RBS FINE 07:14:

    The FCA's statement on RBS's failings on mortgage advice include some gems: "The firms [RBS and NatWest] failed to ensure that advice given to customers was suitable. Two reviews of sales from 2012 found that in over half the cases the suitability of the advice was not clear from the file or call recording." This was happening two years ago.

     
  22.  
    RBS FINE

    The Financial Conduct Authority confirms it has fined RBS and NatWest £15m for failures in their mortgage advice process.

     
  23.  
    RYANAIR BUSINESS 07:04:
    Ryanair poster

    Ryanair is pitching for business travellers. It says it will offer them free flight changes in future, as well as a 20kg checked-in bag allowance. But to get this they will need to pay almost £60 to join the Ryanair Business Plus club, via www.ryanair.com/en/business-plus. You need to put in all your details before it will tell you any more about it.

     
  24.  
    SALMON SANCTIONS 06:44:
    Fish on plate

    News from Norway. Marine Harvest, the world's largest salmon farmer, is warning that Russian sanctions will present it with some short-term challenges. Meantime, the company reports operational earnings of 1.22bn crowns (£120m), nearly double last year's figure.

     
  25.  
    RBS FINE 06:30: BBC Radio 4

    Richard Jeffrey of Cazenove Capital Management tells listeners to the Today programme that the impending fine for RBS over poorly sold mortgages is "disappointing". But he says we shouldn't beat up the banks too much as it is essential that confidence in the banking system is maintained.

     
  26.  
    SCOTTISH INDEPENDENCE 06:23:

    The Scotsman letter says business is worried about - yes, the pound - and the EU and tax and pensions. There are of course some industries that are warmer towards independence - the airlines for one. Remember Willie Walsh of BA said independence could be positive for the country and Ryanair backed the SNP's plans to cut air passenger duty.

     
  27.  
    CPP 06:13: Radio 5 live

    Sarah Pennells of SavvyWoman.com has been on Wake up to Money, telling us that this Saturday is the deadline for millions of people to claim compensation for being mis-sold unnecessary credit card insurance, or identity protection policies, by the company CPP. Around seven million people are thought to have been mis-sold this "insurance" over the years. But so far only 1.7 million have lodged a claim.

     
  28.  
    SCOTTISH INDEPENDENCE 06:05:
    Oil rig

    More than 130 businesses have signed a letter saying the business case for Scottish independence "has not been made". The signatories come from a variety of businesses including banking, mining, engineering, food, whisky, and technology. The letter is published in today's Scotsman newspaper.

     
  29.  
    06:01: Ian Pollock Business reporter, BBC News

    We are expecting the formal announcement that RBS is being fined £15 million for giving poor mortgage advice.

     
  30.  
    06:00: Rebecca Marston Business reporter, BBC News

    Morning. Looks like we're in for a busier day than yesterday - let's hope so. Stay with us here on Business Live 'til 13:00 for the pick of the news.

     

Features

From BBC Capital

Programmes

  • A woman riding a bicycleClick Watch

    Cycling tech - from charging your phone with pedal power to backpacks that double as indicators

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.