The Airports Commission. Proposals for Providing Additional Airport Capacity in the Longer Term -South East Airports-

Transcription

1 The Airports Commission Proposals for Providing Additional Airport Capacity in the Longer Term -South East Airports- Submission by MSP Solutions Limited July MSP Solutions Limited. July Page 1

2 1. Executive Summary This paper examines the options for the development of a hub airport to meet the UK national needs for the next 50 years. UK Government policy on civil aviation since the war has been to look at the development of the industry on an opportunistic basis. Virtually all of the UK airports have been military bases dating from World War 2 or development of former aircraft manufacturing sites into commercial airports. The result of this evolutionary approach has been the creation of a large number of sites, none of which has the critical mass or catchment to grow into what is essentially needed: fewer larger regional airports. In the South East having boldly moved forward with the original 6 diagonal runway scheme at Heathrow Airport in the 1950s, policy has moved towards the development of other SE airports principally at Gatwick, Luton and latterly Stansted. The development of Gatwick, and latterly Stansted, has been seen as more important to create the objective of internal UK airline competition policy rather than developing Heathrow in a timely manner to meet the strategic needs of civil aviation in the UK. The privatisation of the airports and airline industry as BAA and BA were floatedoff on the stock exchange has also prioritised the short term objectives of their management at the expense of meeting the real strategic long term needs of the UK. Now that control and ownership of both of these organisations have effectively passed into foreign ownership, the ability of the Government to influence key decisions has been significantly reduced. For the major SE Airports the break-up of the BAA monopoly through the forced sell off of Gatwick, Edinburgh and Stansted has heavily increased the debt supporting the industry, spiralling up airport charges to an airline industry which is struggling to maintain profitability. The elimination of BAA as a UK quoted company has made the former BAA management and investors rich at the ultimate expense of the taxpayer and consumer who pay for the higher cost of medium term financing under the private equity financing arrangements now applying at Heathrow (LHR), Gatwick (LGW) and Stansted (STN). In this paper we have looked at how all of the three existing major SE Airports (LHR, LGW and STN) could be expanded to meet long-term demand at the UK s premier hub airport. We have also looked at the Thames Estuary schemes and the distributed hub scheme advocated by Gatwick and Birmingham Airports as a challenge to LHR expansion. Based on our professional experience as senior managers in the aviation industry who have tried to make the multiple hub strategy work, we believe that the distributed hub approach is not a workable proposition. We conclude that there are only three possibilities that can physically best meet the hub requirement: Expanding LHR westward towards Wraysbury (Tim Leunig s scheme) Building the Thames Gateway Airport at the Isle of Grain site. Developing Stansted into a 4 parallel runway airport. Choosing the way forward depends on the extent to which the public and the Government are prepared to trade-off cost, coercion (compulsory traffic direction) and damage to the environment, principally noise nuisance. MSP Solutions Limited. July Page 2

3 The Thames Estuary Airport is by far the most expensive scheme especially if surface access improvements are included, but it offers the least damage to the environment in terms of noise nuisance. Moving ahead with this scheme would be the most expensive of the three options. Rebuilding Heathrow would be much cheaper than building a new Thames Estuary airport, but would subject central London and its suburbs to a huge amount of additional overflying aircraft and noise nuisance. There is also the sensitive question of its impact on Windsor Castle. The last solution is to develop Stansted Airport. This would cost about half the level of the Thames Estuary airport and probably about 60% of the surface access infrastructure costs. In terms of damage to the environment the noise nuisance would be much greater than for the Thames Estuary Airport but much, much less than developing Heathrow. Our recommendation based on a delicate balance of cost and environmental damage would be: Allow LHR to move to mixed mode operation to cover the immediate need. Build Stansted into a 4-runway hub airport to replace Heathrow which would close. Build a Severn Estuary airport to replace Bristol and Cardiff airports. This would provide extra capacity to meet demand for services when Heathrow is closed and would be a 24/7 freight hub. We believe that the Airports Commission needs to find a sensible solution to fix the immediate shortage of hub capacity as well as resolving the long-term problem. The case for building additional runway capacity at other major airports, particularly Gatwick, needs to be based on the merits of the case. In the event of Stansted being selected as the hub replacement for Heathrow, there may be an enhanced case for Gatwick expansion to take over some or all of the existing Stansted low cost flights. The precise re-alignment of traffic distribution after the completion of the hub airport would need to be modelled. However even at this distance there would be some scope to rationalise some of the low cost frequency that is basically uneconomic and that relies on subsidies from other flights and central resources. 2. Foreword The UK Government has established an Airports Commission, under the chairmanship of Sir Howard Davies, to examine how the UK s status as a leading global aviation hub can be maintained. As part of its remit the commission has been asked to maintain a UK perspective, taking appropriate account of the national, regional and local implications of any proposals. The Commission has also been asked to provide materials, based on detailed analysis, which will support the Government in preparing a National Policy Statement to accelerate the resolution of any future planning applications for major airports infrastructure. Decisions on the configuration of hub airport capacity in London and the south east of England have a major implication for the whole UK economy. Accessible long-haul commercial air services are MSP Solutions Limited. July Page 3

4 important for all economies. They are essential for business passengers and are a convenience for leisure travellers. They contribute to the competitiveness of a country or region. They especially are an important factor in attracting inward investment in a mercantile economy as seems desired by all UK Governments of recent years. The last Government review of airports policy in 2003 adopted a regional approach that considered regions separately. By doing so it failed to take account of the combined needs of the regions and completely failed to address the need to provide a world-class competitive hub airport for the whole of the UK, based in the south east. The focus on individual regions instead of looking what would be beneficial to overlapping areas led to the continued fragmentation of UK airports many of which were and are uncompetitive in the long term. This opportunistic approach of offering something minor to all the incumbent airports with a ban on all new runway construction, except at Stansted and the third northern runway project for Heathrow, failed to address the question of providing competitive capacity in the UK. A re-balancing of the UK economy, both spatially and towards manufacturing, will not be best served by a further concentration of airport capacity in south east England, without a parallel significant improvement in the connectivity of regions such as south Wales and the west of England, and the north of England. If the Government wants a competitive mercantile economy it has to improve the quality of airport capacity in the UK. A comparison between Munich and Manchester airports shows what can be done and how aviation policy has been successful in creating a second major hub airport in Germany and completely failed in the UK. London now has 6 significant commercial airports (Heathrow, Gatwick, Stansted, Luton, London City and Southend). None of them is world class. The Government and its predecessor have chosen an apparent competition policy to break-up the BAA dominance of the three major London airports: Heathrow, Gatwick and Stansted. All three airports remain regulated by the CAA, however the break up of the former BAA group and loss of UK ownership has led to their current structure of excessive medium-term debt funding. This in turn has led to excessive costs for airline users (not proportionate to the facilities offered) at the SE Airports, ultimately paid by passengers and the taxpayer. The other major policy followed by both Governments has been to impose significant (and steadily rising) tax on civil air transport in the form of air passenger duty making the UK industry completely uncompetitive with the industry throughout the European Economic Area. The Government shows absolutely no leadership in seeking to influence or manage the UK civil aviation industry, a policy that is not adopted by the UK s leading European competitors France and Germany who support their aviation industries, both airports and airlines. There is no Government plan or policy to ensure that the UK remains competitive in civil aviation. Instead the Government follows an opportunistic policy of apparent competition but with no intention of allowing airports the opportunity to expand capacity without having to undergo endless challenges in an excruciating planning approval process that is hugely time-consuming and expensive. MSP Solutions Limited. July Page 4

5 Over the last 10 years all the regional airports growth, including Stansted and most of the recent Gatwick growth, is attributable to the expansion of low-cost carriers. The conventional scheduled airlines have hardly grown whereas in continental Europe the size of the major carriers has doubled in this time frame. Government policy and consultation documents seem to be far more concerned with environmental issues than with examining how to meet the needs of the industry. Yet the Government does nothing to help to improve efficiency, or even to reduce the pollution caused by the industry, as it refuses to plough back any of the rising tax revenue it collects for the benefit of the industry. The DfT published a new long-term air traffic forecast in February This shows that in the longer term air passenger growth from the regions, especially south and west Wales and south west England, is forced to move to Birmingham. It is our hypothesis that it would be better to serve this demand with a bigger regional airport replacing both the existing Bristol and Cardiff airports and by providing SE England with a world-class hub airport. After much careful thought and evaluation we believe it is very difficult to make Heathrow into a long term world-class airport without expanding the airport westward. This is due to the physical site limitations which heavily compromise all the other schemes that we have seen. Any expansion of Heathrow increases the noise nuisance under the flight-paths. We also do not believe that it is either safe or acceptable for the population in central and west London to have to endure much more overflying than is currently imposed. Whichever option is chosen for the development of London airports, air connectivity elsewhere needs to be enhanced. There is a prima facie case that this can be best achieved by creating a new passenger and cargo airport on the Severn estuary. This proposal is addressed by us in a separate paper in association with the Institute of Welsh Affairs. In February 2013 the UK Government Department for Transport issued a new air traffic forecast. This traffic forecast shows significantly slower rates of growth compared to previous forecasts mainly as a result of lower estimates of future economic growth and the continued sluggishness in recovery of growth in air traffic over the last two years. We believe that the impact of continually higher taxation on aviation in the form of Air Passenger Duty in the UK and the EU carbon trading emissions scheme will have a noticeable effect in inhibiting the growth in demand for air travel for the foreseeable future. We believe the new forecast is more realistic than earlier forecasts although we disagree with some of the key assumptions, mainly on technical change and the changeover towards biofuels which we believe could be much more significant than the UK Government predicts. At first sight the new air traffic forecasts cast doubt on the need for much additional airport capacity if one looks at the apparent difference between constrained and unconstrained demand. What these scenarios fail to show is that utilisation at Heathrow is already effectively 100% of capacity while at Gatwick utilisation is over 90%. The immediate critical traffic demand of commercially important passengers (related to inward investment) is to travel to these two airports. When they are full, passengers are forced elsewhere, but the real scenario is that the many commercially MSP Solutions Limited. July Page 5

6 important passengers will not choose to travel to the UK especially if there are no direct appropriate long-haul flights, when they can so much more easily fly direct to Frankfurt, Paris or Amsterdam. We believe that this policy of constraint at the key SE Airports will have a damaging impact on London as Europe s most important financial centre and will slow down inward investment in the UK especially from the BRIC countries. We conclude that to be competitive the UK needs a large 4 parallel runway hub airport capable of handling up to 200 million passengers. We are doubtful that a practical Heathrow scheme can meet this requirement at an acceptable cost to the environment. Nevertheless we are not opposed to short to medium term improvements at Heathrow to bridge the gap until a new or enlarged existing airport hub can be built and commissioned. We have put in a proposal of our own to cover this requirement. This paper examines the realistic options available for a hub airport in SE England and what impact any decision to go ahead with a particular scheme would have on the other SE Airports. We also consider the case that Birmingham Airport is making to serve London and SE England as a distributed hub. As this paper was being finalised on 17 July Heathrow Airport released its submission to the Davies Commission. This comprises three possible solutions for a 3 rd runway and three solutions for a 4 th runway. We still believe that there are major issues with all of these HAL proposals especially in terms of the environmental impact of more flights and more emissions. The measures proposed by HAL, while constructive to mitigate the environmental impact, are in our opinion still insufficient to overcome the increased pollution and noise nuisance. 3. Introduction Accessible commercial air services are important for all economies. They are a convenience for leisure travellers. They contribute to the competitiveness of a country or region. They are an important factor in attracting inward investment. The majority of business travellers in SE England use three main airports Heathrow, Gatwick and London City. This fragmentation of premium services over three airports is less than ideal and has come about because over the last 10 years Heathrow Airport has been effectively operating close to or at full capacity. As a consequence there are no free Heathrow slots available for landings or take-offs at commercial operating times for most destinations. Adding new destinations or frequency at Heathrow therefore requires cannibalisation of existing flights either within one airline group such as IAG (BA/Iberia) or acquisition of some existing slots from an incumbent airline by another airline. The middle east airlines, Emirates, Etihad and more recently Qatar Airways have been buying up slots from other airlines to allow them to operate at favourable commercial timings to suck out huge passenger volumes using their largest aircraft (especially in the case of Emirates, A380s) to disperse this traffic over their home hub airports in the Middle East. MSP Solutions Limited. July Page 6

7 The expansion of these Middle East flights, other than providing low cost effectively state-subsidised flights, does nothing for UK aviation as it disadvantages the UK based airlines, IAG and Virgin, and it reduces the chances of the UK airports expanding their destination network. Diverting large volumes of passengers over the Middle East hubs, for which there is a very low volume of indigenous origin and destination traffic, weakens the viability of many new long-haul routes that otherwise could have started at London. The splitting of services amongst three London airports also reduces the possibility of greater choice at a single airport that occurs at the major continental European airport hubs such as Frankfurt, Paris (CDG) and Amsterdam, where there is still is some capacity available for future expansion. This weakens London s competitive position in the premium aviation market which is vital for UK growth under a mercantile economic policy favoured by all UK Governments in recent years. If UK Governments are to continue their policies that favour free trade, liberalisation and support for globalisation, they cannot expect the UK to succeed if one of its key industries vital for success here is severely handicapped by lack of support and the imposition of taxation making it uncompetitive in world markets. As the growth of aviation in Continental Europe and the Middle East has demonstrated over the last 10 years, possession of a world-class major hub airport and critical mass of the indigenous airline carrier are vital for success. The demise of BAA, the break-up of its UK shareholding and ownership of key UK airports especially in SE England, have drastically weakened the UK airports industry while the stagnation, decline in service standards, incompetent management and emergence of industrial disputes in BA have done similar damage to the UK airline industry. Ten years ago BAA and BA were world leaders in their domains. Today they are both in decline and largely discredited as beacons to be followed with admiration in export markets. The managements of both these organisations have made mistakes, but they have not been helped by the even greater mistakes and continual failures in UK Government policies. Amongst the biggest failures of UK Government policy over the last 30 years has been negligence in resolving the requirement for the UK to have a world-class airport in the South East. All policies have been short-term fixes to avoid and delay the difficult decisions. It took nearly 20 years to develop and build Heathrow Terminal 5. This was completed on the promise that no new runway capacity was needed at Heathrow, even though at the time that planning approval was granted the airport was operating at over 90% of capacity. No sooner was the terminal completed than BAA (supported heavily by BA) planned its filing for approval to build a new runway to the north of the existing airport site. It is hard to believe that no one in the UK Department for Transport and ministerial advisers was aware of this anomaly at the time of the Terminal 5 Planning Inquiry and approval. Over the years, environmental opposition to airport development has become more vociferous especially in the southern England. If one examines the noise nuisance that has to be endured by the population underneath the landing and take-off flight-paths for major airports that are operating at full capacity from 06h00 to 23h30, this is a very understandable position for those affected by the continual drone of aircraft either losing height on their final approach to landing or hurtling into sky MSP Solutions Limited. July Page 7

8 climbing on close to full engine power. On top of the daytime operation there is also the noise nuisance of a limited number of night-flights that disturb precious sleeping hours. All Governments of all political complexions have avoided doing anything significant to reduce the noise nuisance of major airports especially at Heathrow over the last 20 years. The option that is facing the Airports Commission and ultimately the Government is quite simple. Will the Government agree to the UK having a world competitive hub airport? If so, will this be adapting an existing site or will the requisite airport be built on a new site? We address these two questions in the sections that follow in this paper and come to our own conclusions. 4. What is required of a future major hub airport in South East England and why is it needed? The vast majority of civil airports in the UK are either former military bases or aircraft manufacturing sites, many of which were built during World War 2 to defend the UK against Nazi Germany. Many of these sites gradually evolved into sites for private flying and commercial flights after the military operations and manufacturing activity ceased, serving a few destinations at relatively low frequency. So while the level of operations were often of low intensity, it did not matter that the sites were not well located from the point of view of catchment or noise nuisance to the neighbourhood. In any event the early level of civil operations was often not significantly more than that of the military and the noise nuisance was frequently much less. However as civil aviation has evolved, grown and become more important in the economic development of the UK, investment in airport infrastructure, with the possible exception of Stansted Airport, has not followed the pace needed both in the regions and in SE England. At present the UK has one hub airport at Heathrow where approximately 30% of the passenger traffic handled by the airport transfers between flights at the airport. In the late 1980s and early 1990s there were several attempts in the UK to emulate the deregulation of the US aviation industry in the early 1980s, when a large number of airport hubs were created so that the competing airline groups could successfully concentrate their flights to offer a higher frequency on key routes. In the UK plans for several hubs were studied and put into effect: A plan was devised to built hub airports at Birmingham (short-haul to short-haul) using the new Eurohub terminal built at the airport. Manchester was planned to grow into a short-haul to long-haul hub Gatwick was planned to become a shorthaul to longhaul hub like Heathrow Finally, conceptually only, Stansted was planned to become a low cost short-haul to longhaul hub. Much work was carried out by BA in the 1990s to try to make hub operations at Birmingham and Gatwick successful. Ultimately they both failed largely for economic reasons due to BA s cost structures which at that time were universal throughout the UK, based on excessively high Heathrow MSP Solutions Limited. July Page 8

9 costs, low productivity and high pay rates. These were simply too expensive to make regional operations profitable. Also, at Gatwick there was already a problem with slot availability as the airport at that time was full of charter flights that blocked out vast tranches of commercially desirable slot timings. A further critical factor at that time (prior to the full EU deregulation that took place in three steps) was that all UK flights were subject licencing by the CAA. The CAA, with Government connivance, went out of its way to inhibit the growth of the BA network in favour of growing the independent airlines. The belief in government and regulatory circles was that even in a regulated fare environment, competition between UK airlines was more important than developing a national worldwide competitive airline. It was interesting that the key European countries of France and Germany followed quite the opposite course. They backed their national airlines, Air France and Lufthansa, in every way that was possible. Air France and Lufthansa have continued to grow while BA remains static and has even declined. Eventually the failure to make operations commercially profitable at all UK airports other than Heathrow could not be resolve by cost reductions. The multi hub policy was abandoned by BA as were all of its domestic flight operations except a limited range of destinations out of Heathrow, Gatwick and London City airports. Since no other airlines were either interested or able to replace BA in the hub concept, it died except at Heathrow. A further major factor was the decision by Governments to follow a multi-airport policy for the London airports system. This led to a major expansion of Gatwick Airport, the complete redevelopment and expansion of Stansted Airport, growth at Luton and the construction by the private contactor Mowlem of London City Airport, encouraged by the state owned Docklands Development Commission. Once EU civil aviation deregulation was complete, fragmentation of the airports industry in the UK was accelerated by the formation and subsequent rapid growth of low cost carriers, especially Ryanair and easyjet. These airlines, especially Ryanair, allowed many essentially uneconomic airport sites to continue to operate in the hope that they could attract increasing volumes of low cost airline traffic, even if their catchments, facilities and surface access were hopelessly inadequate. Even at Stansted, Ryanair was offered a sweetheart deal by BAA of 50% airport charges for several years that led to major litigation when it was later withdrawn. The emergence of low cost airlines, which had no interest in hub development as their sole purpose was to serve point-to-point markets, allowed the Government to take its eye off the importance of hub development at Heathrow. The focus was on filling up the existing regional airports, Stansted and Luton with low cost scheduled flights to give consumers a good deal. As a consequence Heathrow development was confined to Terminal 5, the refurbishment of the Central Area Terminals 1, 2 and 3 and the renovation of Terminal 4. The existing Terminal 2 was demolished in the Central Area to be replaced by a new Terminal 2 integrated into Terminal 1 that will open in early When complete, this will add some extra stands and nominal terminal capacity, but as the airport is essentially full in terms of runway utilisation the only benefit would be MSP Solutions Limited. July Page 9

10 the ability to replace smaller aircraft with larger ones. The problem of no additional landing and take-off slots remains the key issue at Heathrow. Why is a major hub airport needed? Why not continue with the SE multi-airport policy until all available capacity is used? There are five major reasons why a fully competitive hub airport is required for London and SE England. Hub airports allow airlines to assemble a larger number of passengers for their long-haul flights so they are not completely reliant on the local catchment. Extra passengers allow airlines to operate larger aircraft that reduce the cost of travel and the emissions per passenger movement. Extra passengers allow airlines to operate to more destinations which otherwise would be uneconomic. Extra passengers allow airlines also to offer greater frequency of service on given routes. This allows the airlines much greater marketing power, which also benefits the commercial presence of the airport hub. Hubs ultimately, where they offer attractive other features, also encourage stop-over passengers. Those extra stop-over passengers spend additional money on accommodation, meals, entertainment and shopping, all of which add to the wealth of the country in which the hub is located. Another important reason to retain and develop a London hub airport is inward investment and growing business in the financial centre of the City of London. If key businessmen and investors cannot travel easily to the UK by direct flights, they will go elsewhere. Paris and Frankfurt both have some substantial spare capacity (25% to 30%) for Air France-KLM and Lufthansa to grow both frequency and add new destinations without cannibalising their existing networks. For BA at Heathrow the situation, even post the acquisition of BMI from Lufthansa s control, is that short-haul flights need to be eliminated to provide additional take-off and landing slots for either extra frequency or new route development. Under an arrangement with the EU regulators, to gain consent for the BMI acquisition Virgin has acquired some of the BMI slots from BA, but it is in the same position as BA if it wishes to grow its long-haul network. So Heathrow remains highly constrained in its fight to remain competitive with the growing continental European hubs of Frankfurt, Paris and Amsterdam. One of the arguments put forward by opponents of the expansion of runway capacity at Heathrow is that there is still capacity available at Gatwick (around 10% or 5 million extra passengers) and that at Stansted over 50% of the capacity is unoccupied. If no capacity is available at Heathrow then the airlines will migrate to Gatwick and Stansted. There is some evidence to support this view. For example until recently two major Middle East carriers, Emirates and Qatar Airways, operated at both Heathrow and Gatwick. Qatar Airways subsequently moved all its Gatwick flights to Heathrow by buying Heathrow slots from other airlines. BA operates at both Heathrow and Gatwick albeit generally with different route networks. easyjet started in Luton, then moved into Stansted and then into Gatwick where it is now by far the biggest operator. MSP Solutions Limited. July Page 10

11 Unfortunately the evidence is also strong that the large full-service long-haul scheduled airlines would all transfer their services from Gatwick to Heathrow if they could acquire the necessary slots at an acceptable price. One only has to look at the airlines that have done just this at the earliest opportunity. Over the last 15 years American Airlines, Delta Airlines, Continental Airlines, Air New Zealand, All Nippon, Virgin and BA are just a few of the major airlines that have switched either all their flights or as many as possible from Gatwick to Heathrow. Similarly easyjet has grown its operations at Gatwick much faster that it has at Stansted and Luton. There are hardly any long-haul airlines at Stansted and the evidence for rapid growth there in future is not very strong. Taking the latest DfT 2013 Central Forecast Unconstrained Case for the period 2011 to 2050 (reproduced from Annex D8): DfT 2013 Forecast Unconstrained Central Forecast (with CAA data for 2012) mppa Airport Heathrow % % % % % % Gatwick % % % % % % Stansted % % % % % % Luton % % % % % % London City % % % % % % Total SE Airports This shows a clear passenger preference for Heathrow over the other SE Airports, with Stansted s share fairly static at between 13% and 14%. The story is one of steadily growing share for Heathrow, the hub airport, from 52% in 2011/2012 to over 58% by This is strong evidence for the importance of the Government becoming much more supportive of the development of the SE hub airport. There seems to be some discontinuity in the forecast for Gatwick, which appears to be heavily constrained between 2020 (38.3 million passengers) and 2030 (39.8 million passengers). This is an increase of only 1.5 million passengers over 10 years. There must be an error in this calculation, or perhaps more likely, it is a constrained case with demand limited to a single runway that is full throughout this period. Whatever the explanation, it is doubtful this is a fully unconstrained case for Gatwick demand for this 10-year period. We have also looked at the DfT Constrained Central Forecast Case (reproduced from Annex E2): DfT 2013 Forecast Constrained Central Forecast Case mppa Airport Heathrow % % % % % Gatwick % % % % % Stansted % % % % % Luton % % % % % London City % % % % % SE Airports MSP Solutions Limited. July Page 11

12 In this forecast no new runways are built at the SE Airports. Heathrow is full from 2011; Gatwick is full from So in terms of extra flights, passenger demand is forced into Stansted. Throughput at Heathrow and Gatwick only rises because over time larger aircraft are deployed at these airports for a static number of aircraft take-off and landing slots. However, even in this forecast, Stansted demand in percentage terms peaks in 2030 at 19.5% and falls back to 17.9% by Comparing Gatwick passenger volumes under the two scenarios shows some anomalies: Gatwick Airport Passenger flows under the different DfT 2013 Forecasts mppa Airport Unconstrained % % % % % Constrained % % % % % Difference 0.0 0% 1.0 0% % 2.6-3% 7.7-5% We find it difficult to believe that the unconstrained forecast for 2030 is lower than the constrained forecast (highlighted in yellow) so there seem to be some modelling inaccuracies in the DfT s forecasting process. The analysis above shows that the critical demand in SE England and also elsewhere for long-haul flights connecting over the hub is for Heathrow, not for the other airports. Airport Destinations (city pairs) by Key UK Airports in 2011 Scheduled Charter Scheduled Charter Airport Actual Actual Actual Actual Heathrow Manchester Gatwick Birmingham Stansted Liverpool 65 0 Luton Bristol London City 31 0 Cardiff Total SE Airports Glasgow Total Regional Airports Edinburgh Other UK Airports Newcastle East Midlands TOTAL UK Airports 1, Total Regional Airports Source DfT 2013 Forecast Essentially, in a free undirected market even with no new runways to be built in SE England, in the constrained forecast scenario the traffic is reluctant to move to Stansted. When it does so, Stansted does not build up a wide range of long-haul routes and thus does not provide relief to Heathrow and Gatwick that are both full. So in a constrained scenario it is reasonable to believe that passengers will eventually use Stansted, but this occurs only because there is no other choice. Heathrow s popularity can be explained by the wide choice of services, especially high frequency on both long-haul and short-haul routes, convenient access to the west of London and important MSP Solutions Limited. July Page 12

13 residential areas such as West Surrey, Berkshire, Hampshire, Buckinghamshire and Hertfordshire as well as Central London. Heathrow is reasonably located for road access from the M4, M3, M40 and M1 via the M25. There is strong evidence that business passengers on long-haul flights continue to demand high quality on-board cabin service that is provided by the leading full-service international airlines. These airlines wish to operate at a high quality airport with appropriate facilities where passenger demand is the highest. Heathrow is currently the most appropriate airport in SE England best meeting all these requirements. None of the other SE Airports are better located in terms of the current surface access considerations. Gatwick is too far south of London, has good rail links but road access requires the negotiation of the most congested south-west sector of the M25 which is unreliable in terms of journey time. Luton is too far north of London although connections by road M1 and rail are reasonable. Stansted is limited by the moderate access by rail from London over a heavily congested line from Liverpool Street. London City is the closest and is accessible from central London by the Docklands Light Railway. However road access is congested though built up areas, making it difficult for access except from east London. Southend is accessible by rail from Liverpool Street Station, but road access relies on the A127 which is heavily congested at certain times of the day. So, if surface access and proximity to the main catchment are the prime considerations at the expense of everything else, the priority would be to find means of growing Heathrow. We now examine all the existing SE airport sites and some new sites proposed by various interest groups as the location of London s future hub airport. 5. Review of Existing South East England Airports 5.1 Heathrow Current Activities Heathrow serves over 180 destinations in around 90 countries and has the biggest long-haul network in terms of passenger intensity in Europe. The airport occupies a surface area of 1227 hectares. It handled 70 million passengers in 2012, an all-time record for the airport. It has two long parallel runways 45 metres wide (3902 metres for the Northern Runway and 3658 metres for the Sothern Runway) at 1325 metres spacing which is not in full conformity with the ICAO recommendations of 1.5Km separation for fully independent parallel runway operations. The airport currently has four passenger terminals in operation and a new Terminal 2 is currently under construction. Passenger volume by terminal in 2011: Terminal million passengers on 122,992 flights (opened 1968) Terminal 2 closed for reconstruction Terminal million passengers on 104,100 flights (opened 1961) Terminal million passengers on 62,039 flights (opened 1986) MSP Solutions Limited. July Page 13

14 Terminal million passengers on 184,616 flights (opened 2008) Passenger profile: AB: 48%; C1: 42%, C2: 6%, DE: 4% Percentage of international passengers in 2011: Percentage of domestic passengers in 2011: Percentage of business travellers in 2011: Percentage of other leisure travellers in 2011: 93% (64.7 million) 7% (4.7 million) 37.1% (26.0 million) 62.9% (43.4 million) Percentage of transfer passengers in 2011: 34.6% (24.0 million Areas per terminal: Terminal 1 74,601 square metres Terminal 2 currently under development Terminal 3 98,962 square metres Terminal 4 105,481 square metres Terminal 5 353,020 square metres These figures do not include Flight Connections Centre and passenger piers areas. Aircraft stands Number of aircraft stands served by an airbridge: 133 Number of remote stands: 70 Heathrow employs directly around 8,400 people and it is estimated that a further 70,000 are employed by the airlines and organisations providing services to the airport. The main drawback of Heathrow is road surface access to the highly congested Central Area (Terminal 1 and 3 and the new build Terminal 2 in 2014) and the inconvenience of passengers having to change flights from the Central Area to Terminal 4 or Terminal 5, from Terminal 4 to Terminal 5 and vice-versa. Rail access is also limited with an excellent Heathrow Express rail connection to Central London Paddington but not much else, and the Piccadilly Line Underground connection to Central London. Motorway connections, especially to Terminal 5, are very good with a direct link off the M25 (Junction 14) close the M4-M25 Junction 15. Terminal 4 is linked to the M25 via the Airport s southern perimeter road, while the Central Area connects to a short spur off the M4. The principal characteristics of flights at Heathrow are: Destinations and airlines Number of airlines: 86 Number of destinations served: 183 (in 90 countries) Most popular destinations New York (JFK) Dubai Dublin Frankfurt Amsterdam Percentages of domestic, European, North American and other long haul passengers in 2011 MSP Solutions Limited. July Page 14

15 Domestic: 6.8% Europe: 41.0% North Atlantic: 22.8% Other long haul: 29.4% In terms of flights Heathrow offers a higher level of frequency to more destinations in North America than any other European airport. It also has a wide range of long-haul flights to India, Hong Kong, Australasia, South Africa and the Middle East. Heathrow s other strength is its extensive short-haul network, with good frequency to most of the important European destinations - especially business centres. With the acquisition of BMI, British Airways (BA) now operates around 50% of the flights at Heathrow. With the One World Alliance - BA, Iberia, American Airlines, Cathay Pacific, Qantas, Japan Airlines, Royal Jordanian, Qatar Airways - the traveller is offered the widest range of integrated services. The other major groupings - Star Alliance (led by Lufthansa) and Sky Team (led by Air France-KLM) - also offer a good package of destinations from Heathrow Airport. For the business traveller Heathrow offers a good choice of destination coupled with high frequency. This means time-management can be more easily achieved together with easier accommodation of unexpected change of plans. For the long-haul leisure traveller, except the Caribbean and Southern USA (the Florida resorts), Heathrow also offers an excellent choice of destinations with good frequency and strong price competition for the traveller who is prepared to use this hub rather than other airports, whether these be in continental Europe or a Middle East airport such as Dubai. Heathrow s major disadvantage in terms of economics is the UK Government s imposition of air passenger duty which adds a substantial levy, especially on premium (first class and business class) fares. While first class traffic may be less price-sensitive, this is not true of business class traffic. Higher air fares and less destination choice at Heathrow places it and the UK in a less competitive position than the European hubs and makes the UK a less attractive place for inward investment as business travel in and out of the UK is more expensive than it should be in a truly competitive market. Heathrow is operating at around 98% of maximum capacity. There is no possibility of additional flights unless the current trial of mixed mode operation (simultaneous take-off and landings operated independently on both runways) is extended, or agreement and approval to build a third runway is given by the UK Government. Heathrow Airport Limited now say that they no longer support the concept of mixed mode operation on both runways, probably because this weakens the immediate case they have now made for one of three new proposals for a third runway construction at the airport. Heathrow s main catchment is central London and the outer London Boroughs, but it also serves Surrey, Hampshire, Berkshire, Wiltshire, Dorset, Somerset, Buckinghamshire, Sussex, Essex and Bedfordshire. Here it competes to some extent with Gatwick, which also offers an extensive shorthaul network, especially if low cost airlines services are included. For East Anglia, many passengers choose to fly to Amsterdam from their local airports connecting on to long-haul services. For passengers in the UK regions and Scotland, Northern Ireland and Wales, Heathrow remains an important connecting airport for long-haul flights where the domestic flights network is convenient. MSP Solutions Limited. July Page 15

16 However the Heathrow domestic network has declined steadily over the years in terms of destination choice as domestic flights have been squeezed out to provide additional slots for European short-haul flights and extra long-haul flights. BA in particular has heavily reduced its Heathrow domestic flights and also cut back on the loss-making BMI domestic services that it acquired in According to the CAA Passenger survey of the 69.4 million passengers that used Heathrow in 2011, 45.9 million 66% were terminating passengers. This means that 34% of all passengers using Heathrow were transfer passengers. Of the terminating passengers, analysis by region showed that 75.1 % (34.5 million) passenger came from or travelled to the South East including the London Area. The next biggest origin and destination was Eastern England with 3.69 million (8.1%) followed by 3.32 million (7.1%) SW England passengers million West Midlands passengers and 810,000 passengers from Wales also chose to use Heathrow Airport. Heathrow Terminating Passengers in 2011 Region 000's % South East 34, East of England 3, South West 3, East Midlands 1, West Midlands 1, Wales Yorkshire and the Humber North West North East Scotland Ireland 15 0 Total 45, If one looks at connecting domestic flights at Heathrow: North West England, North East England, Scotland and Northern Ireland are all served by regular flights at reasonable frequency. However the volume of passengers from all of these destinations represents only represents 615,000 passengers or 13% of the total terminating passengers. What is not shown by these figures is the relative importance of these connecting domestic flights to commercially important passengers. In spite of the inconvenience of travel from Wales, the West Midlands and SW England, especially by public transport, Heathrow still represents a very important airport for originating and destination traffic from these regions of the UK. If the existing airport infrastructure is maintained, with no change at existing regional airports, Heathrow will remain an important departing and arriving airport for passengers travelling to and from Wales and SW England. Its attraction would be significantly enhanced by the new rail loop-line terminal envisaged as part of the electrification of the route between London and Wales and the West. For the West Midlands passenger, travelling to Heathrow by public transport is not particularly easy, especially by rail, where connection has to be either to Reading and then by coach or to Euston and then by underground or via Paddington on the Heathrow Express rail link. If the HS2 High Speed Rail MSP Solutions Limited. July Page 16

17 Link is built with a convenient link into Heathrow many more West Midlands passengers will probably choose to use Heathrow Airport especially for long-haul flights. Cargo: Heathrow is by far the largest cargo airport in the UK handling 1.46 million tonnes in The vast majority of this cargo is transported in the belly holds of wide-body passenger aircraft. There are very few pure freighter operations at Heathrow. This explains why its cargo volume trails Paris (CDG), Frankfurt and Amsterdam that continue to handle a large number of pure freighter aircraft. While slots remain scarce at Heathrow it is unlikely that the airport s cargo volume will grow as fast as that recorded by the other major European hub airports. Expanding Heathrow to Meet the Long Term Demand as the UK s Premier Hub Airport There are five major problems related to the expansion of Heathrow: Lack of convenient site space to build two additional parallel runways Surface access issues related to improved rail links, road access to the central area and further expansion of the M4 and M25 motorways Premature demolition of the Central Area and possibly Terminal 4 Removal of the British Airways maintenance base at the east end of the airport Increased environmental impact and risk of an air accident over densely built up areas of central and outer London. Air Traffic Control: Managing the increasing number of flights effectively through a limited volume of airspace. The image overleaf shows the detail of the Heathrow Airport site and the limitations that prevent or inhibit the addition of two additional parallel runways that would be needed to create a world-class hub airport. On the north side this would require the demolition of all the hotels, the office accommodation, some residential housing as well as the shopping areas. There is a limited space between the A4 and the M4 motorway in which BAA proposed the construction of a shorter third runway in This remains an option but there would be the issue of moving Harmondsworth s local church and graveyard. On the south side the construction of a runway would require the demolition of the cargo area and Terminal 4. It would also affect housing to the east and west of the airport. MSP Solutions Limited. July Page 17

18 Meeting the planning requirement Under the 2013 DfT constrained forecast no new runway capacity is added so Heathrow remains full in terms of ATMs at today s level, effectively 100% utilisation. Passenger numbers using the airport under this scenario are: Constrained Forecast mppa Low Central High Airport Heathrow Note: In the High Scenario the capacity of the UK Airports system cannot meet demand The DfT 2013 Unconstrained Central Forecast indicates that Heathrow passenger demand could reach 170 million by This forecast could be exceeded if Heathrow was rebuilt as a fully competitive hub airport. In any event, when dealing with a long-term asset such as an airport where planning times frequently exceed 10 years, it would be prudent to plan for the long term. The Government needs to think in terms of a hub airport that ultimately could be handling 200 million passengers per annum. MSP Solutions believes that to be realistic this would require a 4-parallel runway airport capable of operating mixed mode on at least 2 of the four runways. In terms of landing and take-off slots this would give a capability of at least 52 movements per hour on each of the mixed mode runways and, say, 30 movements per hour on the other two runways, making a total of 164 movements per hour or 2624 movements per day. This would give an ultimate capacity of 957,000 ATMs per annum, or about twice Heathrow s current limit of 480,000 ATMs. If MSP Solutions Limited. July Page 18

19 the average passenger numbers per flight increased from the current 146 to 209, the airport could handle just over 200 million passengers per annum at full capacity. The big question is how can 4-parallel runways be accommodated at Heathrow with the limitations of the site? Lack of Space to Build 2 additional parallel runways 6 solutions have been proposed as possible options for LHR expansion: A 4-runway proposal to move the existing airport further west A proposal to build a new close parallel runway adjacent and south of the existing southern runway A proposal to extend the existing runways 4 km to the west and to split the operation of the airport into 4 independent runways in a series-parallel configuration. 3 separate solutions proposed by Heathrow Airport Limited (HAL) formerly BAA. As work on this paper is closing HAL has just released its submission to the Airports Commission. The report deals in detail with three different 3 rd runway schemes and in outline suggests three possible 4-runway schemes based on whichever 3 rd runway scheme is finally adopted. In addition the HAL report makes a brief comparison of its 3-runway schemes, with the 4-runway scheme further west described in detail in the section immediately below. Our preliminary assessment of the HAL schemes has been added to the text as a new section runway proposal to move the existing airport further west This was first proposed in November 2012 by The Policy Exchange (author Tim Leunig). This consisted of the construction of 4 parallel runways to the west of the existing Heathrow site. This proposal required the removal of the Wraysbury Reservoir, traversing the M25 and effectively extending the two existing runways westward from the existing Terminal 5 main building, with two additional parallel runways, one to the north and one to the south. The existing 1325 metre spacing between inner runways could probably be widened to 1.5km in this scheme by displacing each inner runway around 80 to 100 metres from the centreline. The Policy Exchange claims that the new airport could handle up to 960,000 ATMs per annum at full capacity in an 18-hour operational day. The plan calls for a toast rack solution of retaining the existing Terminal 5 arrangement and extending satellite terminals both east and also west. The western satellites would all be located between the runways. It is claimed that the entire existing infrastructure in the Central Area and at Terminal 4 would also be retained. However it seems that much of the existing passenger airport terminal buildings in Terminal 3 would need to be replaced and there would be major modifications to what is now Terminal 1 and what is currently under construction as Terminal 2. There would also have to be a major new terminal at the end of the toast rack to the west between the two new inner runways. It seems that the British Airways engineering and maintenance would not require to be moved at the eastern end of the existing airport. The report makes three major suggestions to reduce the noise nuisance at the modified airport: MSP Solutions Limited. July Page 19

20 The first action would be to ban all aircraft that do not meet Chapter 4 noise requirements. This would mean the elimination of all B747 aircraft including the B747-8, removal of about half the B777s (certainly all the current versions powered by Rolls-Royce Trents), elimination of the A s and A s and all of the older B737 family and B757s/B767s. The second action would be to replace the current 3 degree landing glide path with a much steeper 5.5 degree glide slope as is practiced at London City Airport for short-haul flights using narrow body aircraft. Wide-body aircraft would continue to operate on the 3 degree glide slope The third action would be to eliminate all flights between 23h00 and 06h15 with no night flights. This would give the population living under the flight path a further 1h45 minutes sleep. At first sight all the proposals look attractive. Heathrow gets a 4-parallel runway airport. Virtually all the existing airport terminal and surface access infrastructure is retained. The problem starts with the land take, which is substantial, and it brings some residential areas in Berkshire into closer proximity with the flight path. The suggestions to reduce the impact of noise by elimination of the noisier aircraft is commendable but would have to be implemented over time to enable the airlines to modernise their fleets, especially for the aircraft that have not been long in service. The proposal to change the glide path angle of approach for narrow body aircraft, while keeping wide body aircraft on the same track, looks a complex change to manage for the air traffic control management (NATS). MSP Solutions remains doubtful whether such a change is realistic, especially from a safety point of view, especially as this would increase the complexity and collision risk on approach for up to four runways under simultaneously operation. The third action to reduce the working day and to eliminate the night flight quota is a major benefit for all residents affected by landing and take-off noise at the airport. As is acknowledged in The Policy Change text in the paper, it would mean shuffling the flight times for some Asian and North American flights, especially if there are tail winds shortening the trans-atlantic flight times leading to early arrivals at Heathrow. It seems reasonable that if the number of hourly slots is heavily increased there could be an acceptable trade-off to apply a reduced working day. The main objection to The Policy Change proposal, if it is accepted that the steep glide path for narrow body aircraft is impractical, remains that there will be more (many more) flights over central and outer London and that the area affected by aircraft noise would be significantly increased. This factor and concerns for safety of such a large number of aircraft flying over such a larger urban zone would seem to be a major problem. No other country in the Europe world imposes such a widespread noise problem on a large urban population as does Heathrow. MSP Solutions believes this is an unacceptable imposition and that it will cause immense opposition to this proposal to expand Heathrow Airport in spite of the other benefits it would bring, especially in terms of extra slots. If it was not for the extra noise issue, The Policy Exchange proposal is perhaps the most imaginative and practical proposal to resolve the difficulties encountered at the Heathrow site. MSP Solutions Limited. July Page 20

21 5.1.2 Proposal to build a new close parallel runway adjacent and south of the existing southern runway We now look at a proposal to build a new close parallel runway adjacent and south of the existing southern runway. This runway would require the demolition of Terminal 4, all the cargo areas, including the BA cargo terminal and the VIP reception area. The close proximity of this runway would make the southern runway pair a dependent set of runways which would probably eliminate or at least heavily reduce the number of movements that could be achieved in mixed mode operation. One report advocating this solution to the Heathrow Airport expansion problem stated that this close parallel runway would add 22 movements per hour increasing the current maximum of 80 slots per hour to 102 per hour, an increase of 32%. This claim would need to be verified in terms of the difficulty in runway crossing and available airspace for safe operation at this level of activity. If this proposal were to be coupled with the addition of one of the new HAL northern runway schemes or the old BAA 2003 scheme, Heathrow would become a 4-parallel runway airport, albeit with a less than ideal runway, taxiway and terminal layout. The BAA rd LHR Runway scheme is shown below: MSP Solutions Limited. July Page 21

22 The main disadvantage of this scheme is that the cost would be considerable, connections between terminals would be much less convenient than with the 4-runway scheme proposed by the Policy Exchange and the additional number of ATMs created would be much lower. The noise issue would also be at least as bad as The Policy Exchange Scheme and could be worse as the new Northern runway would result in new take-off and landing approaches spreading noise significantly further north than the existing twin runway arrangement Series-parallel 4-runway scheme for Heathrow Airport This proposal appeared in the Financial Times on 11 th March 2013 and was credited as the creation of Captain Jock Lowe formerly Director of Flight-crew at BA and a former BA Concorde pilot. The concept is essentially to extend both the existing runways approximately an equally similar distance both east and west to create four 3500 metre series-parallel runways. The supporters of this project claim that the scheme, which would create 4 dependent segregated mode runways, would double the existing capacity of Heathrow Airport and could be built at a reported cost of 7.5 billion. Like The Policy Exchange proposal, this scheme also advocates a steep glide path approach to reduce the impact of increasing aircraft noise on the local population arising from the additional aircraft movements. The problem with this proposal is from an air traffic control viewpoint there is a much more complex situation with twice the existing level of traffic on the same headings and there are landings and take-offs on runways located in series as well as in parallel. NATS has not commented in public on this proposal and would doubtlessly have to review it carefully, especially from a safety viewpoint. To the non-expert mind this proposal appears to be intrinsically less safe than the two four-parallel runway options reviewed earlier in this paper. Since it also is likely to add less additional capacity than the 4-parallel runway options, it looks less attractive as a solution. Like the parallel runway schemes, this proposal relies on application of the steep glide slope for narrow body aircraft to mitigate the additional noise nuisance. MSP Solutions believes it would be unwise to rely on approval of this technique being granted by the air traffic control management currently performed by NATS. To conclude this section, MSP Solutions believes that all the practical proposals to increase capacity at Heathrow Airport run into the problem of managing the additional noise nuisance that would be created as a result of the additional flights in and out of the airport. Since in all of the schemes the extent of noise nuisance is either increased for the existing affected population or the noise is spread to other areas or there is a combination of both, there would have to be a general acceptance of this problem by the population affected by the noise as the price for having a better and bigger hub airport. We have not commented on the increase in aircraft emissions that would arise out of expansion of Heathrow, which was a major problem for the original BAA Northern 3 rd runway scheme. We believe that this would probably remain a problem with any of the wide-spaced northern or north-western MSP Solutions Limited. July Page 22

23 runway schemes mainly due to the close proximity of road traffic emissions from the M4. Clearly any expansion of use of the existing runways and the plans to build new runways would have to be evaluated for their impact on local air quality. MSP Solutions remains doubtful that this trade-off is acceptable or even reasonable for the population affected by the extra noise nuisance. In this situation there will be large public opposition to such expansion at Heathrow that will make it very difficult politically to find a majority within Parliament to pass the necessary legislation Review of Heathrow Airport s (HAL s) 2013 schemes HAL s Airports Commission submission has only just been released, so there has only been a limited time to look their proposals. Its immediate focus is to once again expand the airport on an incremental basis adding a third runway and then a fourth runway at a later date, as they argue it is not needed now. In all the schemes Terminal 4 and the BA aircraft maintenance base remain in place at the east end of the airport and nothing is done to facilitate better road and rail access to the airport on the east side. However, rail access is much improved overall with a loop into the Great Western line west and a link into the south-west (South West Trains). It has been possible to extract the layouts from the HAL report. These are described in turn in the sections below: The North West 3 rd Runway Option The cost of this option is mid-way between the others, estimated at 16.9 billion. This proposal comprises a new 3500 metre parallel runway 1.35 km north of the existing northern runway. There is also a sensible design of a toast rack terminal between the existing northern runway and MSP Solutions Limited. July Page 23

24 immediately south of the new runway. HAL claims that the runway length can take the largest and heaviest aircraft under hot weather take-off conditions. The main disadvantage of the new scheme, ignoring its environmental impact, is that it requires a new set of adjacent passenger terminals and there will be greater complexity in ensuring easy transfers between the new terminal and the existing terminals. The South West 3 rd Runway Option This is the most expensive of the 3 schemes at 17.5 billion. Like the North West Proposal this scheme also comprises a new 3500 metre parallel runway of 1.65 km separation staggered south west of the existing southern runway. It also has a toast rack terminal design between the existing northern runway and immediately south of the new runway. Again HAL claims that the new runway length could take the largest and heaviest aircraft under hot weather take-off conditions. The main problem with this scheme, in addition to destroying a large amount of reservoir capacity, is that the new terminal is quite a distance from the existing terminal complex located between the existing runways. Again there would be a need to build an underground rail link connecting the two sets of terminals. The Northern 3 rd Runway Option: This is the lowest cost option at 14.3 billion. Unlike the other two proposals this scheme also comprises a shorter new 2800 metre parallel runway 1.33 km north of the existing northern runway. It also has a toast rack terminal design between the existing northern runway and immediately south of the new runway. The new runway length would not be able take the largest and heaviest aircraft under hot weather take-off conditions, but would be able to handle the take-off of all aircraft on short-haul flights. HAL MSP Solutions Limited. July Page 24

25 claims that the new scheme avoids the need to demolish St Mary s church in Harmondsworth, although it seems that the village would be badly affected by the aircraft noise. The main problem with this scheme is similar to the North West Scheme. The new terminal is quite a distance from the existing terminal complex located between the existing runways, although it is closer than the terminal proposed in the BAA 2003 scheme In our view all of the schemes represent an improvement on the proposal put forward and supported by the previous Labour Government in The main problem we have with all three schemes is that none of them on expansion to 4 runways would achieve an optimal 4-runway airport with all the terminals in line as a toast rack formation between the inner two parallel runways. The only 4-runway scheme meeting this objective is the westward expansion advocated by The Policy Exchange (Tim Leunig) Proposal. We reproduce the HAL comparison of the three new 2013 schemes with the original 2003 scheme: Comparison of HAL 3rd Runway Options July Schemes Proposal PSDH North North West South West PAX Capacity mppa Max ATMs ' Runway Length m Noise comparison not calculated -10% -15% -20% Residential Properties lost Volume of water storage lost M³ not calculated million Ecology Impact (Ha) Historic Buildings lost Grade 1 and Construction Complexity low low medium low Capital Cost Billion PSDH is Project for the Sustainable Development of Heathrow, the 2003 BAA Scheme MSP Solutions Limited. July Page 25

26 We now review the three 4-parallel runway schemes as contained in the latest HAL submission. Northern-South West 4-parallel runway scheme for LHR This scheme combines the Northern 3-runway scheme with the South West 3-runway scheme. Our main concern with this scheme is the scatter of the terminals as we have three sets of terminals each located between a pair of runways. We do not believe that this arrangement is as good at The Policy Exchange proposal and it is a long way short of the Isle of Grain layout. We do not believe such a layout gives the UK a World Class Hub Airport. The North West - South West 4-parallel runway scheme for LHR This scheme combines the North-West 3-runway scheme with the South West 3-runway scheme. As in the North South-West scheme discussed above, our main concern with this scheme is also the scatter of the terminals as we again have three sets of terminals each located between a pair of runways. In our view the complexity of the terminal arrangements and lack of flexibility on the runway layout are significant drawbacks. We also do not believe that this arrangement is as good at The Policy Exchange proposal and it is a long way short of the Isle of Grain layout. Like the North South-West scheme we do not believe such a layout gives the UK a World Class Hub Airport. MSP Solutions Limited. July Page 26

27 The Northern Twin Parallel Runway Option 4-Parallel Runways We come now to the third 4-runway scheme proposed by HAL. The main difference here is that HAL elect to build two new parallel runways to the north-west of the existing northern runway. We have some issues with this arrangement especially in respect of the new terminal buildings between the southern of the two new runways and the existing northern LHR runway. These two runways are required to be placed much closer together to squeeze in the second new runway. As a consequence the terminals cannot be placed in a conventional toast rack arrangement as they need to be turned 90 degrees into longitudinal positioning. Once again there would be issues of interconnecting the terminals for transfer passengers. From our preliminary examination, we conclude that all the HAL proposals understandably compromise the final layout to being suboptimal in order to fit into the tight constraints of spreading noise nuisance and maximising use of available land while trying to minimise the number of residential dwellings that need to be demolished. This is an extremely difficult exercise and we accept that it is easier for us to criticise HAL s proposals than to find a better solution. So we would like to congratulate HAL on applying considerable imagination in trying to develop Heathrow into a 4-runway airport. MSP Solutions Limited. July Page 27

28 HAL estimate that the additional cost to develop their 4-runway schemes would cost between 8 to 14 billion depending on the scheme selected over and above the cost for the 3 rd runway schemes. We show for comparison the 4-parallel runway case presented by The Policy Exchange (Tim Leunig) also reproduced from the HAL submission. This is shown below: MSP Solutions Limited. July Page 28

29 HAL claim that the cost of The Policy Exchange (Leunig) proposal would be at least 10 billion more expensive, would require much more demolition of existing housing (1700 dwellings) and would take 5 years longer to build. We cannot verify these estimates, but they do sound reasonable. Nevertheless we believe that if Heathrow is to be retained as the UK hub, it should be immediately developed into a 4-parallel runway airport as a single project (spread out over time if required) but not carried out incremental steps each to be approved in turn as advocated by HAL. Environmental Aspects of the HAL proposals HAL accept that more needs to be done to mitigate the environmental damage caused by the planned growth of Heathrow Airport under both 3- and 4-runway scenarios. The main proposal to reduce the impact of noise is to propose a slightly steeper approach angle of 3.2 degrees in place of the current 3 degrees. We assume that this concept has been discussed with NATS as seems likely and that NATS is mindful to support this change. The second change they propose is to ban all B aircraft from operating after While this would represent a reduction in the maximum individual aircraft noise level, it does not solve the problem that there will necessarily be more flights passing over residential areas and that more areas will be affected by noise. We still believe that this is a major problem without real resolution and that it is not acceptable to the population on a permanent and increasing basis. The other area of concern is emissions and air quality. Heathrow is surrounded by the busiest motorways in the UK, if not in Europe. This is the reason why these emissions are the cause of unacceptable levels of pollution and poor air quality. When the rd runway scheme was proposed for the planning approval process, it fell down on grounds of emissions and poor air quality most of which were due to pollution from the M4 motorway. We remain sceptical that reducing the building and airport vehicle emissions as proposed by HAL in a redeveloped Heathrow will be enough to overcome this problem. We are not sure how to reduce emissions on a motorway that is saturated for much of the day in a situation and where traffic demand will continue to rise. In our view, in spite of the extra cost The Policy Exchange proposal is much to be preferred to any of the new HAL proposals and that this is the scheme for LHR development that should be selected by the Commission if it is mindful to retain and develop Heathrow as the UK premier hub airport MSP Solutions Proposal - An Alternative Solution for Heathrow MSP Solutions remains doubtful on the wisdom of expanding Heathrow to a 3- or 4-runway airport, principally for environmental reasons. We just do not believe that the population under the flightpath is prepared to accept (or should be forced to accept) such a large increase in aircraft movements. However, we accept that there is a need to expand airport capacity elsewhere and that the costs of building such capacity, especially in improving surface access, is a very large part of the total project cost. It seems likely that it will take a time to build any new airport, perhaps 10 years, maybe even longer. In such an event expecting the UK to make do with no expansion at its hub airport is not a sensible outcome. Accordingly we have looked at what could be done to Heathrow MSP Solutions Limited. July Page 29

30 that would improve its operation and increase capacity in the medium term without building any new runways. We describe our ideas in a little more detail now. Maximising the Existing Runway Capacity The two current runways are normally operated in segregated mode. Under our proposal we would operate both runways in mixed mode operation. We understand that this would add 80,000 movements per annum taking the maximum capacity of Heathrow to 560,000 movements. We would also seek to limit the minimum size of aircraft to 190 seats with a greater incentive in the airport pricing structure to encourage the use of larger aircraft. The current Heathrow pricing structure needs to be modified to make this change. It would also require the support of the airports regulator, the CAA. This change would lead to a phase-out of most of the smaller narrow body aircraft such as B737s and the A320 aircraft family (A318/A319/A320). It still would still be possible to operate B and A321 aircraft in moderately high-density configuration economically. Over the last few years the expansion at Heathrow has been targeted at increasing frequency, and in the case of many routes the aircraft size has reduced. This is especially true of domestic routes and many routes to Europe, especially those where traffic has been affected by the Eurostar and the Channel Tunnel. Many routes now have high frequency schedules operating relative small planes leaving (typically A319s) within a few minutes of each other. While this may appear plausible from a competitive viewpoint, we do not feel this is the best use of scarce resources such as slots at Heathrow Airport. This problem is not unique to short-haul routes, although the issue is more significant there as the smaller aircraft are more generally operated. As an example we have taken 3 routes to Germany: Frankfurt, Munich and Hamburg and compared the schedules of Lufthansa and BA. We have highlighted the frequency of flights that travel within 20 minutes of the other airline: London Heathrow to Frankfurt London Heathrow to Munich London Heathrow to Hamburg LH BA Total Flights LH BA Total Flights LH BA Total Flights 06h25 06h50 07h00 08h50 07h50 07h15 07h00 07h25 10h50 08h20 08h20 09h35 08h55 14h50 13h30 09h05 11h10 15h35 09h50 10h50 13h20 12h45 19h25 19h00 11h45 15h25 15h h50 13h50 17h20 17h25 15h10 15h10 20h10 20h05 17h05 16h h05 19h05 19h10 20h MSP Solutions Limited. July Page 30

31 This shows that on LHR-Frankfurt out of a total of 19 frequencies, 10 flights operate within 20 minutes of each other, while on LHR-Munich 8 out 14 flights are within 20 minutes of each other. It would seem to be a good idea to see if the frequency could not be reduced and bigger aircraft operated, perhaps sharing capacity between Lufthansa and BA on certain flights thus releasing scarce LHR slots for other flights. If we analyse the traffic at Heathrow in 2012 and look forward as to what might happen over a 10- year period with mixed mode operation on both runways, (starting formal elimination of the small aircraft after 5 years of launching mixed mode in 2015), we estimate the operating pattern might be as follows: YEAR ATMS Growth on Passengers previous Maximum Actual Utilisation year million Growth on previous year Passengers per ATM , ,282 98% , ,200 99% 0.8% % , ,079 87% 2.1% % , ,494 88% 2.1% % , ,219 90% 2.2% % , ,262 92% 2.2% % , ,632 94% 2.2% % , ,715 97% 2.9% % , ,971 98% 0.6% % , ,401 99% 1.4% % , , % 0.9% % 180 The traffic growth for 2013 is based on the CAA data available to end April 2013, which was a growth of 1.1%. For the following years we have taken account of the Discussion Paper 01: Aviation Demand Forecasting, issued February 2013 by the Airports Commission, but we have adjusted the growth rate to 3.5% until 2019 after which we raised the growth to 5% to take into account the launch of more long-haul destinations for which there would be additional transfer passengers. This forecast might seem optimistic but it would allow Heathrow to last until at least 2022 until it becomes full at least in terms of ATM utilisation. If our forecast is too high it might be possible to squeeze out a few more years until This would allow for the completion of a replacement 4- parallel runway hub airport elsewhere whether this is in the Thames Estuary or at Stansted. Terminal Capacity and Improved Surface Access To enable Heathrow to handle this number of passengers it would be necessary to improve the terminal infrastructure and in particular add numerous additional aircraft stands. It might be necessary to reduce or even eliminate the BA Engineering/Maintenance base on the east side of the airport. Consideration would need to be given to improving access to the airport from the east to relive the Central Area road congestion and it might be necessary to reduce the cargo facilities on the south side of the airport to create additional parking stands and possibly expand Terminal 4. More MSP Solutions Limited. July Page 31

32 facilities would also be required to handle additional A380s. Although further rail facilities would also be desirable, it would be hard to justify this expenditure if the future life of Heathrow was to be limited by a replacement airport elsewhere. Conclusion We would urge the Commission to actively study this mixed-mode approach to extending Heathrow s operating life, especially if it decides that the long-term hub airport to meet the UK needs should be built at another site. We believe that there is little point in building another runway at Heathrow if the site cannot meet the long term needs of a hub airport at an acceptable rate of increasing damage to the environment, especially in terms of noise nuisance. If the Commission accepts that the noise nuisance is a price that could be paid for a much-expanded Heathrow, then the mixed mode operation could be applied to relieve the immediate lack of additional capacity as it will take some time to build one or more new runways at Heathrow. 5.2 Gatwick Like Heathrow, Gatwick Airport serves over 190 destinations in around 90 countries with most of the network being short and medium haul especially leisure destinations. It has a big short-haul network, but with generally a significantly lower frequency than that at Heathrow. The Gatwick short-haul network is largely operated by easyjet that operates 38% of all Gatwick flights. BA also operates a much more limited range of destinations in Europe as a well as a number of domestic UK points. There is also an extensive charter airline programme both to Europe and some long-haul MSP Solutions Limited. July Page 32

33 destinations operated from Gatwick Airport by airlines such as Thomson, Thomas Cook and Monarch Airlines. The long-haul network at Gatwick centres on an extensive flight network to the Caribbean and Southern USA, principally Florida leisure destinations by BA and Virgin; Dubai with 3 daily flights by Emirates and other flights to Asia (Vietnam and China). Gatwick is actively seeking to obtain other long-haul flights and airlines, but is up against intense competition from Heathrow for which airlines and their passengers still have a clear preference. In terms of passenger intensity, Gatwick is around half the size of Heathrow, but is still by far the busiest single runway airport in the world, handling around 34 million passengers per year. The airport is currently operating at about 90% of capacity, so it would still be possible to add more flights mainly in the off-peak periods. The runway is 3318 metres long and 45 metres wide and there are two passenger terminals. The South Terminal occupies 160,000 square metres handling around 17.8 million passengers and 129,600 flights. The newer North Terminal has a capacity of 98,000 square metres and handles 16 million passengers on 112,400 flights. The Gatwick Airport management has already indicated that it will apply to the Airports Commission for a second runway to be built after the current moratorium agreed with the local authorities expires in Top ten international destinations served from Gatwick in 2011/12 were: 1. Malaga 2. Dublin 3. Madrid 4. Alicante 5. Geneva 6. Faro 7. Orlando 8. Amsterdam 9. Dubai 10. Palma de Mallorca The Gatwick passenger profile is reported as: AB: 37.6%; C1: 39.7%; C2: 15.4%; DE: 7.3% For the business traveller Gatwick offers a good choice of destination, but at a generally lower frequency than at Heathrow. Most short-haul flights are now carried out by low cost carriers as some full-service airlines have reduced their route networks. These flights include some destinations not served by Heathrow. So, for the cost sensitive passenger, Gatwick continues to attract some traffic from the UK regions including the East of England, South West England, the West Midlands and Wales, despite the distance and more difficult road access than Heathrow. In 2011, according to the CAA Passenger origin and destination survey, 20.9 million (82.6 %) of the passengers came from the South East region followed by 1.8 million (7.1%) from the East of England million SW England, West Midland and Wales passengers (SW England 1.1 million, 414,000- West Midlands and 302,000 passengers-wales) also chose to use Gatwick Airport. This is around 7% of the total Gatwick passenger throughput. About 70% of these passengers were using scheduled flights. The origin and destination of Gatwick terminating passengers by UK region is shown in the table below: MSP Solutions Limited. July Page 33

34 Gatwick Terminating Passengers in 2011 Region 000's % South East 20, East of England 1, South West 1, East Midlands West Midlands Wales Yorkshire and the Humber North West Scotland Ireland North East Total 25, These figures show that in spite of the inconvenience of travel from the three regions, especially by road, Gatwick Airport still represents a relatively important airport for this originating and destination traffic. If the existing airport infrastructure is maintained, with no change at other regional airports, and the pattern of traffic at Gatwick remains broadly similar to the current pattern, the airport will continue to remain a significant departing and arriving airport for passengers travelling to and from these UK regions. Gatwick Airport directly employs 2200 employees but claims that total employment at the airport is around 26,000. The DfT 2013 Forecast For Gatwick The constrained forecast for Gatwick with no additional SE Airport runway capacity is set out below: Constrained Forecast mppa Low Central High Airport Gatwick Note: In the High Scenario the capacity of the UK Airports system cannot meet demand. Runway utilisation is forecast under this scenario as: Runway Utilisation - Constrained Forecast Gatwick High 90% 100% 100% 100% Central 90% 100% 100% 100% 100% Low 90% 100% 100% 100% 100% Gatwick will be full in terms of runway utilisation by 2020 under all three growth forecasts. MSP Solutions Limited. July Page 34

35 Expansion Possibilities at Gatwick Airport Gatwick Airport have not published their proposals for the Airports Commission on the second runway, so the analysis in this paper is based on the information published in DfT consultation document The Second Edition February 2003 of the Future Development of Air Transport in the United Kingdom: South East. This consultation shows three possible schemes: A close parallel runway to the south of the existing runway. A wide spaced runway to the south of the existing runway Two new runways: A wide spaced runway to the north and a wide spaced runway to the south of the existing runway. These schemes date from 2003 and were made at the time that Gatwick Airport was owned by BAA. The current owners the Global Infrastructure Partnership Consortium (GIPC) may have a different view. Nevertheless if GIPC decide to request only one runway, as seems likely, it would probably be based on the previous wide spaced proposal. At a late stage in preparation of the document we understand that Gatwick is most likely to be advocating a single new runway at Gatwick as part of a scheme to have a distributed hub at the SE Airports. This is a similar approach to that advocated by Birmingham Airport who also believe that a distributed hub, but with Birmingham effectively connected into the SE Airports system by the proposed HS2 High Speed Rail project. We give our opinion on this concept at a later stage in this paper. MSP Solutions has examined the three LGW schemes as proposed in February The LGW two-runway scheme (reproduced for the 2003 DfT Consultation document) If two new runways were to be built at Gatwick the airport capacity in terms of additional take-off and landing slots would effectively be no larger than adding a further runway at Heathrow Airport. The new northern runway would be subject to restrictions. In an easterly wind direction take-off would require flights to pass over a large part of the residential area of Horley, so this would restrict the use of the runway under these conditions to landings only. In a westerly wind direction landings would take the flights over Horley while take-off would subject residents to massive runway noise. Due to this significant increase in noise nuisance on quite a large area of population, MSP Solutions is doubtful that the northern runway would gain planning approval. The single runway schemes Of the two schemes the wide spaced runway proposal adds the most capacity and the environmental impact is only marginally worse. So the wide spaced runway proposal would be a more sensible way forward as it would allow mixed mode operation on both runways effectively doubling the existing slot capacity of the airport. MSP Solutions Limited. July Page 35

36 The problem facing Gatwick Airport is that while adding a second runway helps Gatwick Airport to expand beyond 2020, when it is expected to be full, this expansion is insufficient to allow it to replace Heathrow as the UK premier hub airport. So the issue facing the Airports Commission is one of whether it should recommend the construction of a second runway for Gatwick knowing that this decision does not resolve the fundamental UK problem of insufficient hub airport capacity on a single MSP Solutions Limited. July Page 36

37 site. There is also the issue that if the Commission decides to recommend the replacement of Heathrow as a hub airport with a development elsewhere (but not at Gatwick), it may need to direct some (or all) of the traffic out of Gatwick, especially the long-haul flights, to make the new hub airport economic and be able to pay back the construction capital costs. Our conclusion is that the Airports Commission should only recommend the expansion of Gatwick runway capacity if it decides to retain Heathrow Airport at the main UK hub airport (recommending that Heathrow expand to 4-parallel runways) or if it recommends Stansted Airport as the hub. 5.3 Stansted Stansted has a single runway of 3049 metres by 45 metres, two adjacent terminal buildings of total capacity 30 million passengers and 3 satellites for receiving aircraft on essentially pier served stands. Stansted Airport s operations are dominated by low-cost carriers, principally Ryanair which has its largest European base there with over 100 destinations. easyjet also has a significant operation at Stansted. In 2012 it transferred some of these flights to Southend, but the company has come to an agreement with the new owners of Stansted (The Manchester Airport Group Consortium) to expand its Stansted operations significantly in future years. Stansted handled 17.5 million passengers in 2012 (down 3.2% on 2011) using 143,511 ATMs There are also a number of international long-haul cargo flights at Stansted. In 2012 Stansted handled 214,000 tonnes of cargo. Unlike Heathrow and Gatwick Airports there are very few longhaul scheduled passenger flights, so Stansted s only attraction for traffic in other UK regions and Wales is probably for special offer (heavily discounted) low cost flights. Nearly all the scheduled flights are to continental European destinations and some holiday flights to the Mediterranean and North Africa for inclusive tour groups. The CAA 2011 passenger survey for origin and destination passengers at Stansted is: Stansted Terminating Passengers in 2011 Region 000's % South East 10, East of England 4, East Midlands South West West Midlands Yorkshire and the Humber Wales North West North East Scotland Ireland 2 0 Total 16, MSP Solutions Limited. July Page 37

38 The overwhelming share of passengers is from the South East and the East of England. Stansted is much less attractive to most of the regions as many of its low cost flight destinations are available from other closer airports, and it does not offer comprehensive scheduled long-haul flight opportunities. By road Stansted is further from SW England and south Wales than Luton or Gatwick, requiring a long journey on the M25 followed by the M11. The risk of encountering congestion over this length of the M25 is relatively high. Rail access is not ideal as it requires changing London terminal stations from Paddington to Liverpool Street. These factors combine to ensure that Stansted Airport s attraction for passengers travelling to and from Wales is much less than that of Heathrow and Gatwick. Over recent years the volume of Wales originating and destination passengers at Stansted Airport has been around 90,000/annum or around 0.5% of the total Stansted passenger throughput. Volume from the West Midlands and SW England has been 223,000 and 311,000 respectively in This volume is not expected to change materially over the next few years, unless there is a significant change in the pattern of flights at Stansted due to the change of ownership to the Manchester Airport Group, or if Stansted becomes a 4-runway hub to replace Heathrow Airport as a result of the future outcome of the Airports Commission. The DfT 2013 Forecast For Stansted The constrained forecast for Stansted with no additional SE Airport runway capacity is set out below: Constrained Forecast mppa Low Central High Airport Stansted Note: In the High Scenario the capacity of the UK Airports system cannot meet demand MSP Solutions Limited. July Page 38

39 Runway utilisation is forecast under this scenario as: Runway Utilisation - Constrained Forecast Stansted High 58% 77% 100% 100% Central 58% 69% 100% 100% 100% Low 58% 58% 81% 100% 100% Stansted will be full in terms of runway utilisation by 2040 under all 3 growth forecasts. Expanding Stansted Airport It is not known whether Manchester Airport Group is filing an application to the Airports Commission to expand Stansted Airport. In any event it seems likely that other groups will submit reports to the Commission for or against the future expansion of Stansted. MSP Solutions believes that the Airports Commission should seriously consider Stansted as a candidate to replace Heathrow as the UK s primary hub airport as it is the only existing airport site in southern England that could be relatively easily expanded into a 4-parallel runway facility and the cost of expansion and developing the necessary improved road and rail infrastructure would probably be significantly less than proceeding with any of the Thames estuary airport schemes. The environmental impact would be significantly less desirable than proceeding with the Thames Estuary schemes, but would be much better than expanding Heathrow. A more detailed view of the Stansted Airport Site: If Stansted is selected the Commission would need to consider how the airlines could be persuaded to switch their operations from Heathrow. It would probably be necessary to reintroduce the traffic distribution rules. MSP Solutions Limited. July Page 39

40 In the DfT 2003 consultation document The Second Edition February 2003 of the Future Development of Air Transport in the United `Kingdom: South East there are three published schemes for expanding Stansted with one, two and three new runways. In the most developed scheme (the three new runways option) the airport has two sets of twin close parallel runways. The parallel runway scheme is shown on the next page. This scheme and possible variations, including staggering the runways, could be actively considered if Stansted was to become the replacement hub airport for Heathrow. In the 2002/3 DfT Consultation document the maximum capacity of the 4-runway airport was shown as 746,000 ATMs, but it is possible by increasing the spacing and staggering the runways that this could be increased to around 950,000 to 980,000 per annum. This hypothesis would need to be investigated by experts Ensuring the economic viability of a Stansted Expansion Stansted s current airline occupants, principally low cost airlines such as Ryanair and easyjet, would not wish to see the airport expanded quickly to replace Heathrow as the UK s main hub airport. The airport is currently handling around 17.5 million passengers with 100,000 ATMs, which represents about 52% utilisation of the passenger terminal capacity and 42% of the available ATMs. MSP Solutions Limited. July Page 40

41 Surface Access Considerations If the Commission were minded to support the Stansted proposal it would have to be accompanied by a substantial investment in improved road access and a new rail link to Central and west London and beyond to be able to serve the catchment around Heathrow including Surrey, Hampshire, Berkshire, and Buckinghamshire. Unless residents in these counties could connect to Stansted by public transport or in a reasonable time by high quality road links, there would be a massive public objection to transferring flights from Heathrow. Road links would mean a further widening of the M25, a good link into the A1 and up to the Midlands and improved road access from East Anglia north and east of Cambridge. While the cost of such improvements would be substantial (we have allowed for 5 to 10billion in our economics estimates), MSP Solutions believes it would still be much less than the 20 billion or more that would be required to link up the Thames estuary schemes. In the long run even if Stansted is not expanded to this extent and moved only to second runway, most of this investment would be needed anyway to assist surface access to the airport as it grows its operations. Estimate of the Economics of Expanding Stansted: We have carried out some economic analysis of Stansted assuming that the expanded airport would start commercial operations as a hub airport in We have analysed the payback period for a range of capital costs from 15 billion to 25 billion on the basis of 80% debt funding. We also have assumed similar assumptions in the Thames Estuary Airport analysis in section 6 that follows later in this paper. Our analysis for 12 cases of Stansted development is shown below: Stansted Airport Expansion to 4-Parallel Runways Case CAPEX Aeronautical Charges/ Passenger Non-Aeronautical Charges/ Passenger Interest Rate Debt:Equity Payback Period Years Case 1 15 billion % 80%:20% 7.6 Case 2 15 billion % 80%:20% 8.0 Case 3 15 billion % 80%:20% 8.5 Case billion % 80%:20% 8.6 Case billion % 80%:20% 9.2 Case billion % 80%:20% 9.9 Case 7 20 billion % 80%:20% 9.7 Case 8 20 billion % 80%:20% 10.3 Case 9 20 billion % 80%:20% 11.1 Case billion % 80%:20% 11.6 Case billion % 80%:20% 12.5 Case billion % 80%:20% 13.6 The figures are based on the compulsory transfer of all traffic from Heathrow Airport at the beginning of the summer season in The analysis also assumes that all the existing low-cost MSP Solutions Limited. July Page 41

42 traffic leaves the airport at the end of the winter season on the basis that these airlines are not willing to pay the higher charges associated with the opening of the new airport facilities. We conclude from this analysis that at an aeronautical charge of around 15 per passenger the Stansted expansion to 4-parallel runways would be economically viable for up to a cost of 25 billion. For higher levels of Capex the charges would have to be increased ( 20 per passenger ought to be possible and perhaps more) or more traffic be transferred including flights from Gatwick Airport. This analysis shows that the payback for Stansted is relatively attractive and that the project ought to be capable of attracting the necessary debt and equity financing from investors. We have not carried out any economics for Heathrow expansion, but if the capital cost is in the range indicated by HAL we think the charges based on the current CAA regulation would not be less than the figures we show for Stansted. 5.4 Luton Luton Airport is located on a Hill 46 km in a direct line NNW of Central London. It has a single runway 2160 metres long by 45 metres wide. In 2012 it handled 9.6 million passengers with 96,800 ATMs. Its maximum utilisation is 240,000 ATMs, so it is operating at about 40% of runway flight capacity. Luton Airport s operations are dominated by low-cost carriers - principally easyjet, for which Luton was its original main operating base - and by the major charter airlines, Thomson, Thomas Cook and MSP Solutions Limited. July Page 42

43 Monarch Airlines. Nearly all the flights are to continental European destinations and holiday flights to the Mediterranean and North Africa for inclusive tour groups. Luton claims to have 15 airlines operating to over 90 destinations with the overwhelming majority (about 90%) being scheduled flights. The airport claims an employment of over 8000 people at the airport, of which 550 are directly employed by the airport company. For SW England and south Wales access to Luton Airport by road is broadly comparable with travelling to Gatwick with slightly less risk of delays due to congestion on the M25. Rail access from the west is not ideal as it requires changing London terminal stations from Paddington to St Pancras. For the West Midlands travel is easier by road M1 and also possible by rail using trains into St Pancras that stop at Luton Parkway. The CAA 2011 airport passenger survey showed the breakdown of Luton s origin and destination passengers: Luton Terminating Passengers in 2011 Region 000's % South East 4, East of England 2, East Midlands West Midlands South West Yorkshire and the Humber Wales North West Scotland North East Ireland 1 0 Total 8, As would be expected, the vast majority of Luton s passengers come from or are going to SE England and the East of England. Together the East Midland and the West Midlands account for 11.2%. The attraction of Luton for other areas of the UK is very low. Access to Luton Airport is not especially easy for SW England and Wales, so the airport has only a modest attraction for these passengers. Over recent years the volume of Wales originating and destination passengers at Luton Airport has been around 50,000/annum, or less than 1% of the total passenger throughput. For SW England it has been higher at around 210,000. Unless there is a significant change in the pattern of flights, which seems unlikely, this volume is not expected to change materially over the next few years. The DfT 2013 Forecast For Luton The constrained forecast for Luton with no additional SE Airport runway capacity is set out below: Constrained Forecast mppa Low Central High Airport Luton Note: In the High Scenario the capacity of the UK Airports system cannot meet demand MSP Solutions Limited. July Page 43

44 Runway utilisation is forecast under this scenario as: Runway Utilisation - Constrained Forecast Luton High 59% 70% 100% 100% Central 59% 60% 100% 100% 100% Low 59% 48% 68% 100% 100% This shows that Luton will be full in terms of runway utilisation by 2040 under all three growth forecasts. Expanding Luton Airport The limited site availability means in practice Luton could have two possible means of adding additional runway capacity. This would be the installation of a close parallel runway or building a second longer intersecting runway. These schemes were outlined in the DfT 2003 consultation document The Second Edition February 2003 of the Future Development of Air Transport in the United Kingdom: South East. Although both of these schemes would increase the capacity significantly, especially the close parallel runway scheme, neither would be sufficient to convert Luton into an effective hub airport. For topographical reasons and lack of space we believe that Luton Airport is not appropriate to be seriously considered as a candidate to replace Heathrow as the UK s premier hub airport. 5.5 London City Airport MSP Solutions Limited. July Page 44

45 London City Airport has proved, after a difficult start, to be a considerable commercial success as it offers a convenient access to the City of London as a physically closer competitor to the major SE Airports of Heathrow, Gatwick, Stansted and Luton. 15 airlines operate to over 25 destinations carrying 3.0 million passengers in 2012 using 70,800 ATMs. The airport located in a former London dock is extremely restricted with a single 1200 metre runway. Expansion of the site, even extending the runway, would not be an easy proposition The ultimate capacity of the airport with the existing runway configuration is estimated at around 7 to 8 million passengers. Surface access by road is by normal roads within London. However public transport access has been much improved since the airport had an adjacent rail station built on the London Docklands Light Railway. The DfT 2013 Forecast for London City Airport The constrained forecast for London City Airport runway utilisation with no additional SE Airport runway capacity is set out below: Runway Utilisation - Constrained Forecast London City High 56% 100% 100% 100% Central 56% 87% 100% 100% 100% Low 56% 59% 100% 100% 100% Note: In the High Scenario the capacity of the UK Airports system cannot meet demand This shows that London City Airport will be full in terms of runway utilisation by 2030 under all three growth forecasts. Due to its severe site limitations and location, London City cannot be seriously considered as a replacement for Heathrow as the UK premier hub airport. 5.6 Southend Airport Southend Airport located about 58 Km in a straight line from Central London is the former RAF World War 2 fighter airfield of Rochford. It has a 1600 metre runway and is currently being built up as an alternative commercial airport to Stansted by the low cost airline easyjet. As can be seen from the site layout shown below, the site is very physically restricted and there is no space for as second runway. The airport is quite well connected by rail to London Liverpool Street on the Southend Victoria services with a stop at Rochford Station. The DfT 2013 Forecast for Southend Airport MSP Solutions Limited. July Page 45

46 The constrained forecast for Southend Airport runway utilisation with no additional SE Airport runway capacity is set out below: Runway Utilisation - Constrained Forecast Southend High 54% 100% 100% Central 42% 100% 100% 100% Low 28% 42% 42% 57% Note: In the High Scenario the capacity of the UK Airports system cannot meet demand This shows that Southend Airport will be full in terms of runway utilisation by 2030 under 2 of the 3 growth forecasts. Road access from Central London is by the A217 and the A13 both of which connect into the M25. For reasons of the site limitations Southend Airport can be discounted from practical expansion into a large hub airport. 5.7 Other Existing SE Airports Biggin Hill Biggin Hill perhaps the most famous World War 2 RAF Fighter station is an important general aviation airport serving the London area. MSP Solutions Limited. July Page 46

47 Located on the top of a hill with a famous sloping runway, Biggin Hill is 50 km south-southeast in a direct line to central London. It has a 1750 metre north-south runway and another much shorter cross-wind intersecting runway. Designed as a military base, it has very basic facilities but has proved a considerable success as general aviation has been squeezed out of Heathrow and Gatwick airports. Biggin Hill is not particularly well located from the viewpoint of surface access either by road or rail. It is not too far from the M25 so if a new spur were to be built it could be connected into the motorway system. There is no practical solution for improved rail access as the airport is on a hill. From the location and topography of the Biggin Hill site it can be concluded that it is not a practical site for expansion into a major hub airport Manston Manston is a former RAF Coastal Command airfield that was also used as a forward base by RAF Fighter Command in World War 2. It has a 2750 metre runway and numerous attempts have been made to make it into a significant passenger and cargo airport, all of which have been largely unsuccessful. Its location is near Ramsgate and the sea and is in a thinly populated area. However 24-hour operation with a huge number of flights and Ramsgate under the flight-path on the current runway orientation would cause a considerable noise nuisance to residents. MSP Solutions Limited. July Page 47

48 The airport is 105 km in a straight line from central London, so it would be costly to link into a fast rail line into central London as well as being difficult to access from the counties to the west of London currently using Heathrow. So while the site could be expanded to four runways at a lower probable cost than the Thames Estuary Airport proposals or the Goodwin Sands Airport proposal, rail and road links would cost considerably more. MSP Solutions believes that Manston is simply too far from London and the commercially important population base to west-south-west and north-west London to be practically developed into a hub airport Lydd Lydd on the Kent Coast is 98 km in a straight line from central London. The airport has a 1500 metre runway running south-south-west to north-north-east. The approach from the south would be over the sea, but from the north the flight-path would cross over Littlestone-on-Sea and would also affect New Romney. In terms of surface access the M20 motorway is the closest motorway 24 km in a straight line over Ashford, while Folkestone and Dover are 22 and 32 km distant in a straight line. For reasons similar to Manston, Lydd is too far from London to be considered as a site for expansion into a major hub airport. MSP Solutions Limited. July Page 48

49 5.7.4 Cambridge Cambridge airport is very close, about 3.4km to the south-east of the city. It is also the site of the Marshall s heavy aircraft engineering base. As can be seen from the image (overleaf) the airport is MSP Solutions Limited. July Page 49

50 too close to the city and the flight-path to the south-west passes over a large residential area of the city. The site is further out of London than Stansted and offers no practical advantages over the latter. In this situation there would seem to be no good reason to develop this site as: The site is too close to the city Surface access by road and rail is less good than at Stansted which is close to the M11 and has its own railway station The environmental impact would probably be worse than developing Stansted. More land is already available at Stansted. 6. The Thames Estuary Airport Sites There are several proposals for a Thames Estuary Airport. All of them are based on major state-ofthe-art 4-parallel schemes that would potentially handle over 1 million ATMs per year and would allow 24-hour operation. All the sites have been chosen to try to minimise the environmental impact by directing the flight paths over water or over areas of sparse population. Of the current proposals for a Thames Estuary airport the front-runner would appear be the project for a major new airport to be located on the Isle of Grain, partly on the site of the former BP oil refinery. This project is supported by a consortium led by the distinguished architects Norman Foster Associates. MSP Solutions Limited. July Page 50

51 It also appears to have the active support of the Mayor of London who is a fierce opponent of the third runway at Heathrow Airport. Previously the Mayor had been advocating a man-made island further away in the middle of the Thames estuary north of Whitstable, which would have its flightpath over water in both directions. There is also another Thames Estuary airport project which is proposed offshore on the Goodwin Sands right off the north-west tip of Kent. In the 2003 consultation the Government included a similar proposal at Cliffe, a few miles immediately west of the Isle of Grain. This was ultimately rejected, partly as its reception by the airline industry was not very positive, but also the Government then was not brave enough to support a concept of a 4-runway airport. As expected the vested interests in the airports industry, especially BAA, which at that time owned Heathrow, Gatwick and Stansted, were actively opposed to the Cliffe project. All of these projects envisage a massive 4-parallel runway airport that would have an ultimate capacity of 150 to 200 million passengers per annum. This would be at least double the size of the current Heathrow Airport capacity, but would provide London with a world-class competitive airport, something that is very difficult to achieve on the restricted Heathrow Airport site. There are however major problems with all of these projects. This is best exemplified by information published on the Isle of Grain project website: Costs: The basic cost of the airport is reported to be between 25 to 35 billion; The huge cost of major road and rail infrastructure, estimated at billion, to connect the airport to London and to the conurbations to the west; The cost of building the Goodwin Sands and Thames Artificial Island airports would be significantly higher than for the Isle of Grain both in terms of airport construction costs and road and rail connections as the distances are further and more tunnelling costs would be involved. Distance and surface access: The distance from London and the counties of Surrey, Hampshire, Berkshire, and Buckinghamshire, which provide high yield passengers for Heathrow at present, would be much greater and less convenient; It would be significantly less convenient than Heathrow for all travellers outside SE England The problem would be worse for the two more remote airport projects. Securing Traffic for the Airport: Compulsory transfer of air traffic from Heathrow (and possibly Gatwick) airports to operate at the new airport would be required; Without the compulsory transfer of traffic it is doubtful that the project would be economic as the costs could not stand the gradual loading of traffic. The major international airlines are reluctant to move away from Heathrow as this is conveniently located for the basic market. The Government would have to reintroduce the traffic distribution rules to force airlines to move to the new airport. MSP Solutions Limited. July Page 51

52 Providing the workforce and the impact on the airports losing traffic: The provision of the necessary skilled workforce in the vicinity of the new airport would be a concern; The impact of reducing traffic or closing other airports, particularly Heathrow and Gatwick, would affect the local population in terms of travel convenience and employment; We have no doubt that the airport would be able to find the necessary employees, especially if some the key airport staff would be prepared to transfer to the new site. We have to admit that the loss of 75,000 jobs at Heathrow would cause a potential problem. However there would be an offset of a greater number of jobs created in Kent, especially if the new airport allowed aviation to grow faster, as seems likely, than would otherwise be the case at Heathrow. Some of the jobs in the Heathrow area could be replaced by new jobs in other industries that would take over the Heathrow Airport site, assuming that the airport would be closed and all its traffic transferred to the new Thames Estuary airport. The time taken to build the new airport: The time taken to secure planning permission and to construct the airport and its facilities is currently estimated at about 20 years. (This could probably be reduced to 10 years with a reform of the planning laws.) If we accept that the costs and greater distance are significant disadvantages of the two artificial islands proposals then the only question that remains is: Is the additional benefit of lower environmental impact sufficient to offset the two disadvantages? Our opinion is that this is unlikely to be the case. Capital Costs/Operating Costs and Their Impact on Airport Charges We have carried out some analysis of the likely operating costs of the Isle of Grain Thames Estuary Airport and looked at what level of aeronautical airport charges would be required to make the airport economic. We have based the costs on the two figures for the airport capital cost provided by the Foster Consortium. In this evaluation we have made two cases. In the lower cost estimates we have not included any contribution for the road and rail infrastructure capital costs as we have assumed that these would be paid out of public expenditure. In the higher cost estimates we have allocated additional capital to cover part of those costs, typically up to 10 billion. The analysis has been based on the assumption of capital structure equivalent to 80%:20% debt to equity. We have used a range of interest rates of 4% pa, 5%pa and 6%pa. We have also assumed the operation of a manpower-efficient airport based on the Stansted costs escalated for the larger scope of airport operations and that the non-aeronautical income (retail, rents and cargo income) would be at the same level as the passenger aeronautical income in the base case. There is also a higher aeronautical charge case for the higher capital cost cases. MSP Solutions Limited. July Page 52

53 It is assumed that there is an increase in charges at 5-year intervals as typically occurs for the regulated London airports LHR, LGW and STB as at present. The construction costs have been assumed to take seven years and we assume that it would take three years to secure the planning approval. Assuming the Commission was to recommend the airport in mid 2015, we assume that the start of operations would take place at the beginning of the summer season at the end of March We have looked at a single traffic forecast loading up the airport: involving transfer of all the flights from Heathrow alone The analysis for the various cases is shown in the table below: THAMES ESTUARY AIRPORT ECONOMICS Case No CAPEX Construction Start Date Ops Date Debt/ Equity Interest Rate Aeronautical charge per PAX Payback Period Years 1 30 billion %/20% 4% billion %/20% 5% billion %/20% 6% billion %/20% 4% billion %/20% 5% billion %/20% 6% billion %/20% 4% billion %/20% 5% billion %/20% 6% billion %/20% 4% billion %/20% 5% billion %/20% 6% billion %/20% 4% billion %/20% 5% billion %/20% 6% Based on the Foster and Associates plan for the Isle of Grain Site. Assumes non-aeronautical charges are same as aeronautical charges i.e. 50%:50% except Cases 10 to 15. Both charges escalated by 2/passenger every 5 years. The figures show that in the higher capital expenditure cases ( 45billion or more) the airport charges for the new airport would have to be substantially higher than the current level of charges levied at Heathrow after allowing for inflation. This is not surprising as we are comparing a brand new state-of-the-art airport with top quality facilities compared to an airport which today has a significant part of its capital charges at historic investments cost, appreciably written down by many years of depreciation. MSP Solutions Limited. July Page 53

54 Based on this analysis we doubt that the more distant and more expensive Thames Estuary airport proposals can be made to be economic. We have looked at two cases of 55 billion capital cost and one of 60 billion. These costs would include a 15 billion contribution to the road and rail development. THAMES ESTUARY AIRPORT ECONOMICS Case No CAPEX Construction Start Date Ops Date Debt/ Equity Interest Rate Aeronautical charge per PAX Payback Period Years billion %/20% 5% billion %/20% 6% billion %/20% 6% Based on the Foster and Associates plan for the Isle of Grain Site. Both charges escalated by 2/passenger every 5 years. We conclude that the payback period is simply too long to be economic for these more distant projects. In short, the decision to proceed with a Thames Estuary hub airport would probably only be economic for the closer schemes such as the Isle of Grain project (or the Cliffe scheme that was rejected in 2003.) 7. Consideration of Converting the Major UK Regional Airports into the UK Hub airport We now consider the case that has been made by the regional airports that the Government should not support the expansion of Heathrow nor invest in a major new SE hub airport, but instead should support the growth of one or more of the major regional airports to act as a gateway for London and SE England. 7.1 Birmingham Airport Birmingham Airport is very well located in terms road access to the M5, M6, M40 and also to the rail network. It is 6.3 miles south east of the city centre. Access from south and central Wales is already therefore quite good. The airport has a single 3003 metre runway that was recently extended to handle long-haul flights. The airport terminal capacity has been expanded to reach around 15 million passengers per annum. The airport handled 8.4 million passengers and used up 84,000 ATMs in ATM utilisation represents about 44% of the current limit 190,000 ATMs. The main problem with the airport site is its close proximity to built-up urban areas including housing estates, its inability to operate night flights and the limited land space available for expansion. The recent very slow growth and limited destination choice of long-haul flights, except to the Middle MSP Solutions Limited. July Page 54

55 East, limits its current attractiveness for London and SE England, SW England, Wales and also Northern England which is generally better served from Manchester Airport. In 2010 Birmingham Airport handled 153,000 Wales originating and destination passengers, equivalent to 2.6% of the total of 8.6 million. The airport has a good range of medium-cost domestic and European Flights provided by flybe. It also has some long-haul flights to North America, the Middle East and Pakistan. Emirates operate a twice-daily service to Dubai with A330s and B777s, and Qatar Airways has announced that it will start services to Doha. For low cost carriers easyjet operates to only three destinations, but Ryanair claim to fly to 27 points in Europe. Many of these are at very low frequency. There are also numerous charters to holiday destinations. Passenger volume peaked in 2008 at around 9.6 million, since when it has eased back to 8.6 million in 2011 and 93,000 Air Transport Movements (ATMs). There was a small growth in Birmingham Airport s management team have put out a public case for investment at the airport instead of expanding Heathrow. The main thrust of their argument is that expansion at Birmingham would lead to a rapid growth in choice and frequency of flights serving the West Midlands and that when the HS2 rail link was built passengers could access central London in well less than 1 hour of travel by High Speed Train. We can understand Birmingham s wish to expand passenger volume especially if it could also add extra long-haul destinations. The construction of HS2, if it conveniently connects into Birmingham Airport, would increase its ability to extract passengers out of SE England and Central London, but we cannot see how Birmingham Airport can become a major UK hub airport simply due to its limited site space. The idea of building a major 4-parallel runway to replace Heathrow is a compete non-runner! MSP Solutions Limited. July Page 55

56 We deal with the distributed hub concept advocated by Birmingham Airport in Section 8 of this paper. Traffic Forecasts for Birmingham Airport The comparison of the DfT 2013 Central Forecast for Birmingham Airport is shown below: Airport mppa Birmingham Constrained Unconstrained Difference This shows that under the constrained scenario with no new SE Airport runway capacity, some substantial traffic is forced to use Birmingham as the SE Airports all fill up especially in the period post-2030 to If we look at Birmingham for the constrained forecast for the three different growth scenarios we get quite a wide variance in demand: Constrained Forecast mppa Low Central High Airport Birmingham We believe that Birmingham is and should remain an important regional airport for the UK and one in which some more long-haul services should develop over time. The table below represents how flights at Manchester and Birmingham Airports could evolve over time under the Central Forecast of the DfT 2013 Constrained Scenario (no new SE Airport runway capacity): Demand Domestic (Excl. intl transfers) Short haul Long haul Hub transfers Grand mppa Total Total Total Total Total Manchester Manchester Manchester Birmingham Birmingham Birmingham This shows that the shortage of SE airport capacity could eventually force up the volume of long-haul flights at Birmingham to a higher figure than at Manchester in However the hub volume at Manchester remains consistently higher as it has a second runway. So although this scenario looks good for traffic growth at Birmingham we feel that this restrictive approach is not consistent with an open mercantile economic policy. MSP Solutions Limited. July Page 56

57 Even if HS2 is built to time and conveniently serves the airport, we are sceptical as to large volumes of SE England passengers using Birmingham Airport when they already have five SE airports to choose from for a much greater choice of destination and frequency. If the Government approves the expansion of some runway capacity at at least one major SE Airport, this will potentially take traffic away from Birmingham Airport. 7.2 Manchester Airport Manchester Airport is very well located in terms road access to the M56, M62 and M6 motorways and is a relatively short distance from the city centre. Access is also quite good by rail from Crewe to the south, with a station immediately under the airport terminal. The airport has three passenger terminals and two close parallel staggered runways each 3,050 metres long. Passenger volume peaked in 2006 at around 22.1 million easing back since to 19.7 million in 2012, although there was some growth in The airport has a good range of medium-cost and low-cost domestic and European flights provided by flybe, Ryanair, easyjet and the major European carriers. There are also frequent flights to Heathrow and Gatwick Airports Manchester has some long-haul flights to North America (New York, Newark, Philadelphia, and Orlando), the Middle East and the Indian Sub-Continent. The USA flights are carried out by American, United, US Airways and Virgin. The flights to the Middle East are saturated with capacity from the major Middle East carriers. Emirates operate three flights per day to Dubai with B777s, and some flights will move over to A380s. Etihad has two flights per day to Abu Dhabi and Qatar Airways has 10 flights per week to Doha. Virgin has scheduled flights to Barbados in the Caribbean. MSP Solutions Limited. July Page 57

58 There are also extensive charter long-haul and short-haul flights for inclusive tour groups. easyjet operates a big route network to 29 destinations in Europe and North Africa, while Ryanair fly to 34 points in Europe. Many of these flights are at very low frequency. There are also many charters to holiday destinations. Although Manchester Airport has an important future serving the North of England and North Wales it is too far from London and SE England to serve as a replacement hub for Heathrow Airport. 8. The Distributed Hubs Concept Birmingham Airport has submitted a paper to the Commission that advocates distributed hubs for the SE Airports whereby there is no further expansion at Heathrow Airport and additional runway capacity is built elsewhere including a second runway at Birmingham Airport. Their argument is that with the construction of HS2 high rail line would effectively allow Birmingham Airport to be connected into London and the SE Airports system. We also understand that Gatwick Airport will be putting a similar proposal to build a second runway at Gatwick and to build enhanced surface access links between Heathrow and Gatwick airports. The concept advocated essentially by both airports is that there is no longer a requirement for a large single hub airport as, by operating more long-haul flights from distributed airports using advanced aircraft now entering service such as the Boeing 787 (and in future the Airbus A350), passengers can be offered a better choice of service. The other argument advocated is that if the airport transfers can be made in about an hour, it would still be practical to connect passengers from flights into Birmingham or Gatwick on to Heathrow flights and vice-versa. We now deal with these two propositions in turn. Distributed Airports offering a choice of flights using smaller aircraft are better than concentrated flights with larger aircraft at a single hub airport: The essential argument is that using smaller advanced technology aircraft the cost of travel is approximately equal to using larger aircraft (so economics and pollution damage are equivalent per passenger movement) and that a better choice is offered to the general public as there is a more distributed availability of flights at their local airports. We think this argument does not stand up to serious scrutiny for the following reasons: 1. Aircraft technology development is essentially a continuous process with practical development carried in discrete steps as new aircraft are launched. 2. The B787 aircraft is a breakthrough development in terms of cost reduction over previous aircraft types, but its costs per passenger movement are still higher than the Airbus A380 MSP Solutions Limited. July Page 58

59 aircraft that will be subject to further development, which in turn will in future widen the gap. 3. There will be further improvements in large long-haul aircraft including eventually a larger replacement of the A380. These improvements will deliver significant further improvements over smaller long-haul aircraft both in terms of economics and emission reduction. 4. The larger A350 aircraft, which would be very large for operating most final destination longhaul routes (ignoring further hub flights such as the Middle East hubs) out of Birmingham, will also deliver a significant unit cost reduction over the B787 aircraft. 5. The distributed hub airports concept still suffers from the problem that it scatters the services around multiple airports rather that concentrating frequency at a single airport. So whether this means travelling in and out of different airports on a low frequency long-haul route or having less convenient flights on higher frequency long-haul flights, the London Airports system would be at a significant disadvantage compared to the major European and Middle East Hubs as a scattered approach would be less convenient than concentration. 6. The final argument is that having a single major hub airport rather than a distributed hubs system allows a single airport to provide the widest possible choice of destinations including weaker (lower demand) long-haul destinations as the large hub can feed more passengers on to the smaller long-haul aircraft such as the B787. This is precisely the reason why BA and Virgin have ordered so many of these aircraft to operate at Heathrow or its successor hub airport. Connecting passengers between airports in a distributed hubs system The argument here is that by improving connections between airports it would become practical for passengers to connect from Gatwick to Heathrow or from Heathrow to Birmingham or vice-versa as the only factor concerning transfer passengers is the connecting time. Having studied this problem professionally in the industry trying to connect Heathrow and Gatwick airports by both helicopter and express coach services, we do not believe this approach is practical. The problem about connections is not simply one of time. It is also convenience and uncertainty. Passengers choosing connecting want to make sure that their connection process is as easy as possible and is not subject to unnecessary risk. Distributed airports make connections much less easy and the risk of failure in the connection is higher than hubbing at a larger single airport. For the following reasons: - Distance between airports is much greater than distance between terminals at a single airport. - The availability of connecting services at a single airport is likely to be much greater (more frequency) than connections between airports. - The risk of just missing a connection and suffering a delay is much higher at distributed airports. - It is physically much more tiring to travel between airports than between terminals. - If something goes wrong at a single airport it is easier and more likely that matters can be rectified than would occur on a journey between distributed airports. MSP Solutions Limited. July Page 59

60 There remains the problem of Customs and Immigration clearance and baggage collection which cannot easily be resolved in a distributed hubs system. Commercially important passengers will not willingly use a distributed hubs system. BA tried for many years to connect Heathrow and Gatwick into a connecting hub airport using a helicopter link and subsequently high frequency dedicated express coaches. Neither scheme was successful. For these reasons we do not believe that it is either practical or commercial to transfer passengers between distributed hubs. To conclude this section we do not believe, for all the explanations given above, that it is realistic to advocate the distributed hub as a solution to solving the SE Airport Hub Capacity problem. It could even be argued that by developing Gatwick, Stansted and indeed London City Airport, successive UK Governments have been following precisely this policy, which has allowed the major European Hubs to develop with the prospect of soon overtaking London unless something radical is done to resolve the situation. So, while we reject the concept of the distributed hubs, we do not ignore the case for Gatwick and Birmingham Airports to seek to expand with additional runway capacity. We believe that the case to eventually allow a second runway at Gatwick Airport is a good one, as the airport is operating at exceptional intensity for a single runway airport and at 90% of capacity. For Birmingham, where runway movements are closer to 40% of capacity, there is some time to go before a new runway is required. We cannot see that a distributed hub solution to the whole London Airports System should be advanced as a reason to accelerate development of Birmingham Airport. 9. Other Possible New Solutions In this paper we have analysed all the realistic solutions for current airports that could practically serve the SE England air passenger travel market. We have excluded Bournemouth and Southampton airports as both airports have restricted sites. There is one other possible airport site that we consider worthy of serious study and that is a proposal to build a new major airport in the Severn Estuary which would replace both Cardiff and Bristol airports. We have submitted a detailed separate proposal to the Commission on this airport concept. We include a brief outline of our proposal here to complete the picture. 9.1 Severn Estuary Airport Our predecessor company Vulcan Associates completed a major report for Newport City Council in 2003 that was submitted to the UK Government as part of the consultation process on the Future Development of UK Civil Air Transport. This report was the result of more than 12 months of studies MSP Solutions Limited. July Page 60

61 by Vulcan into the technical and economic viability of a major new cargo and passenger airport to effectively replace the existing Cardiff and Bristol Airports. We have reviewed the Vulcan study and looked in detail at the projected traffic for the new airport using the CAA data and the DfT 2013 traffic forecasts. Severn Estuary Airport mppa High Medium Low The new airport would be well positioned to serve the cargo markets of southern England, Wales and the West Midlands where, in aggregate, greatest demand exists. A critical advantage of the new airport would be that it would be located on a site that eventually could easily be expanded to have additional parallel runways, should this be eventually required. We show below an illustration on where the Severn Estuary airport site could be located. Please note that this is only an indicative position of where the runway should be located. The exact location and orientation would only be determined following a more detailed appraisal. Newport Severn Estuary Indicative Airport Location Both Cardiff and Bristol Airports face limited growth prospects due to location and site limitations that cannot be easily overcome. In spite of the slowdown in the growth of civil air transport in the UK due to constrained capacity at Heathrow and Gatwick and the effect of Air Passenger Duty taxation as well as the economic recession from 2008 onwards, there still is a strong case for MSP Solutions Limited. July Page 61