Airports Commission: Appendices. Proposals for providing Additional Runway Capacity in the Longer Term

Airports Commission: Proposals for providing Additional Runway Capacity in the Longer Term Gatwick Airport Limited response 19th July 2013 Airports Commission: London Gatwick 008 Appendices

Cover image by Sir Terry Farrell

Appendix 1: Glossary of Terms AC ANCON AONB AQMA ASAS ATM Airports Commission Aircraft noise contour model used by the Civil Aviation Authority Area of Outstanding Natural Beauty Air Quality Management Area Airport Surface Access Strategy Air Transport Movement ATWP The Future of Air Transport White Paper (2003) BA BAA BRIC CAA CAGR CC dba DEFRA DfT ERCD GATCOM GAL Gatwick Diamond GVA LCC LCY Lden LEP Leq LGW LHR LTN Mixed mode mppa NATS British Airways The former owners of Gatwick and Stansted Airports and the current owners of Heathrow, Southampton, Glasgow and Aberdeen airports Brazil, Russia, India and China (where economies are growing quickly) Civil Aviation Authority Compound Annual Growth Rate Competition Commission Measurement of sound decibels in the A weighting Department for Environment Food and Rural Affairs Department for Transport Environmental Research and Consultancy Department (of the CAA) Gatwick Airport Consultative Committee Gatwick Airport Limited Business led private/public sector partnership promoting economic growth in a defined area between Croydon and Brighton. Part of the Coast to Capital Local Enterprise Partnership. Gross Value Added Low Cost Carrier London City Airport The 24-hr Leq calculated for an annual period, but with a 5 db weighting for evening and a 10 db weighting for night Local Enterprise Partnership Equivalent sound level of aircraft noise in db(a), often called equivalent continuous sound level. For conventional historical contours this is based on the daily average movements that take place in the 16 hour period (07:00-23:00 Local Time) during the 92 day period 16 June to 15 September inclusive Gatwick Airport Heathrow Airport Luton Airport Where a runway handles both arriving and departing flights million passengers per annum The provider of air traffic control services at Gatwick Response to Airports Commission July Outline Proposals Page 3

Appendix 1: Glossary of Terms NO x Generic term for mono-nitrogen oxides NO and NO 2 NO 2 O&D PM2.5 & PM10 P-RNAV RG1 and RG2 RUCATSE Segregated Mode SEN SERAS STN tco2e Nitrogen Dioxide Origination and Destination Passengers, i.e. passengers beginning or ending their journey at that airport Concentrations of Particulate Matter for which the European Union has set limits Precision area navigation Air quality monitoring sites within the Horley Air quality management area Runway capacity to Serve the South East Department of Transport study in early 1990s Where a pair of runways are allocated, one to arriving flights and one to departing flights Southend Airport South East and East of England Regional Air Study Department for Transport study in early 2000s Stansted Airport Tonnes of carbon equivalent Page 4

Appendix 2 The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity Prepared by ICF SH&E Limited Page 5

Draft Report The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity 16 July 2013 Submitted to: Gatwick Airport Limited Submitted by: ICF SH&E Limited 3 rd Floor, Kean House, 6 Kean Street, London WC2B 4AS, UK Company above registered in England & Wales. Registration number: 3131624 Page 6

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 TABLE OF CONTENTS 1 Executive Summary... 1 1.1 Introduction... 1 1.2 Market Characteristics... 1 1.3 Demand Forecasts... 2 1.4 Constrained Forecast Scenarios... 4 1.5 Conclusions... 6 2 Introduction... 7 2.1... 7 2.2 Company Overview... 8 2.3 Report Limitations... 9 3 The London Market for Aviation... 10 3.1 Introduction... 10 3.2 Development to Date... 10 3.3 London Today... 12 3.4 Hub Competition... 14 3.5 Common Misconceptions About the London Market... 18 4 Future Demand... 25 4.1 Introduction... 25 4.2 Principal Drivers... 25 4.3 Approach to Forecasting London Demand... 26 4.4 Forecasts for London... 29 4.5 Comparison to Other Forecasts... 30 5 Gatwick Forecasts... 32 5.1 Introduction... 32 5.2 Scenarios... 33 5.3 Capacity, Spill and Recapture... 33 5.4 Summary of Forecasts... 34 5.5 Discussion of Results and Key Assumptions... 39 Appendix A: Forecasts by Scenario... 48 Appendix B: Incremental Growth in Unconstrained Demand... 52 2013 i ICF SH&E Page 7

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 1 EXECUTIVE SUMMARY 1.1 INTRODUCTION ICF SH&E has supported Gatwick Airport Limited (GAL) on traffic forecasting and other planning matters since 2010. Following the formation of the Airports Commission in late 2012, we were number of primary and secondary forecasts of future traffic. This report combines a number of the analyses and supporting memos prepared by ICF SH&E over the last eight months, as well as the traffic forecasts prepared. 1.2 MARKET CHARACTERISTICS London is not like other aviation markets. It is the largest O&D market in the world today, and the overwhelming majority of airport passengers are travelling to/from London (i.e., not using London airports to connect en route to their final destination). As an airport system, London already provides excellent connectivity for the UK (see main section of this report and analysis by InterVistas). However, its largest airports are operating at or close to full capacity, as shown in Exhibit 1.1. Understanding the impacts of these capacity constraints on future levels of London passenger traffic and air connectivity has been a central focus of our analysis. Exhibit 1.1: Passengers and Available Capacity at London Airports, 2012 Annual Pax, Millions 80 70 60 50 40 30 20 10 0 70 34 17 10 3 1 Heathrow Gatwick Stansted Luton City Southend Source: CAA, Publicly available statements of airport capacity [grey portion denotes available capacity] Limited spare capacity in the system today Note: Does not assume capacity growth achievable in future years through de-peaking or growth in passengers per ATM For historical and geographical reasons Heathrow has developed into one of the preeminent hubs in the world. The UK is the first European landfall 1 when arriving from the U.S. This makes all major 1 overflying Shannon now that aircraft have the range 2013 1 ICF SH&E Page 8

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 other European hub. As London is furthest West it has an advantage over other hubs at Frankfurt, Paris, Madrid or Amsterdam. Heathrow is a hub airport and a significant transfer location for British Airways, its alliance partners and, to a lesser extent, for Virgin Atlantic. However, for the great majority of airlines operating at Heathrow, the airport does not represent a major transfer location. Many of these other carriers have transfer passenger feed at the other end of their routes and the availability of transfer passengers at London is not critical to the viability of their flights. The capacity constraints at Heathrow have already resulted in significant changes in the mix of traffic handled at the various airports. A number of airlines have also found it beneficial to sell their slots to those who were buying, while other slots have turned over as a result of carrier failure or acquisition. In the face of slot constraints at Heathrow, some airlines have elected to initiate new routes, including long-haul services in emerging markets, at Gatwick. As is shown in the following charts, over the last decade Heathrow has seen a decline in both absolute share of short-haul and domestic passengers, while non-eu passengers have increased. Exhibit 1.2: Passengers by Segment, Heathrow and Other London Airports, Millions Short Haul Domestic Non EU 80 15 60 60 40 20 0 29 45 24 23 2000 2011 10 5 0 6 7 7 5 2000 2011 40 20 0 16 13 33 41 2000 2011 Other Heathrow Source: UK CAA 1.3 DEMAND FORECASTS Traffic forecasts have been prepared for the unconstrained London market, as well as for a range of capacity scenarios. For each capacity scenario, a set of forecasts was prepared in late 2012 that generally assumed a continuation of airline operating models, preferences and passenger behaviour from historically observed patterns. During 2013 a second set of forecasts were produced following the re-evaluation of assumptions, including: The ultimate capacity of Gatwick in each of the scenarios The attractiveness of Gatwick to airlines and passengers The impact of competition among airports 2013 2 ICF SH&E Page 9

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 The rate at which a new Gatwick runway is likely to fill The price impact of increased charges associated with a second runway levels, surface access and attractiveness to airlines and passengers. It also more realistically reflects the rate at which a second runway would be utilised, recognising that even in a system with unserved demand, airlines and passengers will take a number of years to take up the step-change in capacity. O higher ultimate number due to a higher rate of runway utilisation and larger proportion of passengers on widebody aircraft. Key Messages Growth in demand will not be at rates previously seen, as: o The largest markets for the UK are mature and facing various headwinds. More rapid growth is expected from less developed markets but volumes are small, limiting overall impact o Connecting demand, will be negatively impacted by the introduction of longer range, more economical aircraft due to longer and thinner routes being viable and the continuing expansion of major hubs and airlines in the Middle East o Even at the unconstrained level, we forecast 1-2% per annum growth over the long term Despite this, the large O&D market in London and the continuing reliance for some markets on hub connections mean that additional airport capacity will be required in the future in order to satisfy demand Unconstrained Forecast The unconstrained forecasts are broadly in line with the latest DfT forecasts (January 2013) for the period to 2040, after which the DfT figures are higher, due to higher growth rates in the domestic, European and North Atlantic markets. 2013 3 ICF SH&E Page 10

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 1.3: ICF SH&E Unconstrained Passenger Traffic Forecasts for London, Millions 300 250 200 150 100 50 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 London O&D Demand Other Long Haul Cnx Flows Europe Cnx Flows UK-World Cnx Flows Airport Passengers, Million 2012 2032 2052 20yr CAGR 40yr CAGR London O&D Demand 117 170 215 1.9% 1.5% Europe Cnx Flows 10 14 15 1.6% 0.9% UK-World Cnx Flows 5 7.5 9 2.4% 1.7% Other Long Haul Cnx Flows 3.2 8 8.5 5.0% 2.5% Total 135 199 248 2.0% 1.5% Source: ICF SH&E for Gatwick 1.4 CONSTRAINED FORECAST SCENARIOS Following the unconstrained demand forecasts, the capacity scenarios related to Gatwick and other airports were developed 2. These are summarised in the following table: Exhibit 1.4: Summary of Capacity Scenarios Modelled Scenario Description Base No Airport Capacity developments 2 Gatwick opens a close spaced runway in 2025 3 Gatwick opens a wide spaced runway in 2025 operated in Segregated Mode 4 Gatwick opens a wide spaced runway in 2025 operated in Mixed Mode 5 Heathrow opens R3 in 2030, assumed to be restricted to 605k ATMs For each of the capacity options we have considered how unserved demand would most likely be accommodated, and how quickly the additional capacity would be utilized. Not surprisingly, the more capacity is added at Gatwick, the larger the share of future London demand the airport serves. 2 See main report for full description of scenarios 2013 4 ICF SH&E Page 11

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 By 2025, which we have assumed is the earliest when Gatwick could open a second runway, the London system will be very full. Some demand will have been redistributed to other airports within the London system; some will have been lost. This trend is continued in the Base scenario, which demonstrates the likely outcome if no further runways are built in the London system. The forecasts consider at the market and carrier-type level the likely behaviour in the face of new capacity. None of the forecasts assume that IAG will split its Heathrow hub operations and therefore their transfer and O&D traffic will remain in place (the existing BA operation at Gatwick is assumed to remain at Gatwick). However many other airlines which do not have a hub at Heathrow are expected to be willing to grow their London presence at Gatwick. Examples of such carriers include Emirates, Turkish Airlines and Lufthansa. The rate of fill of the new runway has been considered and benchmarked against other markets where experience, not by the assumption that simply because unserved demand exists, it will be immediately served when the new runway is opened. These scenarios demonstrate that if Gatwick opening a second runway in 2025, it would have a positive impact on the market by providing much-needed capacity. This capacity would be filled over the following decade. Exhibit 1.5: Gatwick Annual Passengers, Scenario 1 to 5 (Vision version) Annual Passengers, Million 100 90 80 70 60 50 40 30 20 10 0 LGW Passengers 1. Base 2. R2 Close 3. R2 Wide 4. R2 Wide MM 5. LHR R3 Source: ICF SH&E Scenario five, where Heathrow adds a new runway in 2030 sees Gatwick take a temporary hit in traffic but this is eventually back-filled due to not all traffic segments (especially short-haul, low cost) being attracted to Heathrow. At the London level, the following volumes are reached by 2050 in the same scenarios. 2013 5 ICF SH&E Page 12

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 1.6: London Airport Passengers by 2050, Scenario 1 to 5 (Vision version) Pax (M) 300 250 200 150 100 50 135 14 18 34 70 203 30 40 50 220 30 40 66 235 239 29 28 40 40 82 87 48 84 84 84 84 223 30 40 106 Other STN LGW LHR 0 2012 Base SC2 SC3 SC4 SC5 Source: ICF SH&E By 2050 the wide-spaced options at Gatwick facilitate annual volumes of over 230m in the London system. Up to 87m passengers are forecast at Gatwick (mixed mode). This is equivalent to a 36%, compared to around 25% today. The Heathrow R3 scenario generates less traffic due to the smaller incremental capacity added 3 and the fact that it is assumed not to be added until 2030. Ultimately, it is possible that Gatwick caters to more passengers than Heathrow (assuming the continuation of environmental and planning restrictions at Heathrow). 1.5 CONCLUSIONS London market for aviation, the flows between the UK and the world, the role of hubs in providing connectivity and the long term picture for the London system, with and without additional runway capacity. Recognising the large number of unknowns in long-term aviation forecasts of this nature, we believe these forecasts represent a well-reasoned and carefully-developed view of future demand and capacity in the London airport system. The forecasts indicate that a wide-spaced second runway at Gatwick for the next generation. 3 Assumed to be capped at 605k ATMs per year on environmental grounds. 2013 6 ICF SH&E Page 13

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 2 INTRODUCTION 2.1 ICF S WORK WITH GATWICK AIRPORT LIMITED ICF SH&E has supported GAL on traffic forecasting and other planning matters since 2010. Following the formation of the Airports Commission in late 2012, we were appointed to analyse the a number of primary and secondary forecasts of future traffic. These forecasts cover the period to 2052 and the traffic model developed to simulate various capacity scenarios, showing the likely distribution and make-up of traffic at the London airports. From the annual passenger forecasts, a number of derivative forecasts have also been produced that have been used by GAL and its other advisors in evaluating future scenarios. These derivative forecasts included busy day movement and passenger profiles, aircraft type forecasts, SID profiles 4, surface access demand input and on-airport employment forecasts. In addition to the forecasts which have been produced, the ICF SH&E team has also produced a number of briefing notes and ad-hoc analyses to support GAL management in the messaging around the proposed second runway. Some of the key questions we have sought to answer include: Situation Assessment Who uses the London airport system today? What are the key drivers of this pattern? Unconstrained Forecasts How much growth is expected in the London system over the next 40 years? Scenario Definition When could a new Gatwick runway be opened? How much additional capacity would it provide? Scenario Modelling How quickly would a new runway fill? What kind of traffic would a second Gatwick runway attract? 4 Standard Instrument Departure effectively determines the aircrafts route immediately following take-off. 2013 7 ICF SH&E Page 14

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 This report contains the highlights of the market analysis, messaging support and forecasting work to date, and is intended to summarise the main findings of the ICF SH&E team. It may be published as 2.2 COMPANY OVERVIEW For the past 50 years, ICF SH&E has been dedicated to serving the air transportation industry, providing its aviation and aerospace expertise to airports, airlines, governments, international agencies, manufacturers, and irport strategy and development, marketing and customer service strategy and implementation, demand management; airport planning; air service marketing; and cost-benefit analysis of environmental regulations as well as airline strategy, planning, and operations; cargo studies; revenue management; appraisals, maintenance management, and asset management; safety and security audits; financial due diligence; privatization, mergers, and alliances. With a staff of 100+ professionals, ICF SH&E has offices in New York, Boston, London, Sao Paulo, Beijing, Singapore, Hong Kong, Chicago and Ann Arbor, as well as a network of associates worldwide. Formerly known as Simat, Helliesen & Eichner, Inc. (SH&E), the firm and its staff joined ICF International in December 2007, further expanding its breadth of services, offerings, and expertise. ICF International (NASDAQ: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, climate change, environment, transportation, social programs, health, defense, and emergency management markets. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 4,500 employees serve these clients worldwide. ICF SH&E has performed more than 8,000 assignments during its 50 year history, serving hundreds of airports, airlines, governments agencies, and the financial community in all parts of the world. This experience provides ICF SH&E professionals with a unique understanding of the challenges facing the industry and positions the firm to offer better insights and solutions than any other consulting firm. ses, methodologies, analytic support. In order to offer our clients the highest level of service, ICF SH&E professionals represent all segments of the aviation industry, as well as financial institutions, government organizations, and the academic community. ICF SH&E has been involved in many major industry developments such as deregulation, distribution, privatization, and revenue management. By participating directly in many emerging 2013 8 ICF SH&E Page 15

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 trends, ICF SH&E is especially well equipped to assist its clients in adapting to a rapidly changing environment. On a yearly basis, ICF SH&E performs over 200 projects worldwide - more projects than any other firm of its type. Committed to providing expert and impartial advice, ICF SH&E projects are both result and value driven. The company's continuous growth has been due in large part to a high level of repeat business from an established client base, testifying to a high degree of customer satisfaction. ICF SH&E also maintains working relationships with academia, research foundations, trade associations, and other industry organizations. The firm is regularly retained by management, Boards of Directors, investors, financial institutions, and international agencies. 2.3 REPORT LIMITATIONS This study develops a market analysis in a manner consistent with industry practices for similar work. ICF SH&E believes that the approaches and assumptions used in this analysis are reasonable; however, certain assumptions regarding future trends and forecasts may not materialise, and therefore could affect actual development and market demand. For this review, ICF SH&E relied on publicly available data and information, including economic and aviation statistics and forecasts, as well as data provided by GAL and forecasts prepared by various ind which ICF SH&E holds a paid-for subscription. Although we believe these sources are reliable, our opinion could vary materially should some of the information provided prove to be inaccurate or incomplete. The opinions expressed herein are not given as an inducement or an endorsement for any financial transaction. ICF SH&E accepts no responsibility for damages, if any, that may result from decisions made or actions taken by any party, including third parties, based on this report. Any use that a third party makes of this report, its analysis, or the opinions contained therein, is the sole responsibility of that party. The analysis and opinions presented in this rep as of July 2013 based on the information available to us at the time this report was prepared. 2013 9 ICF SH&E Page 16

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 3 THE LONDON MARKET FOR AVIATION 3.1 INTRODUCTION a thorough examination of the London market for commercial air transport 5. This has involved presenting an overview of traffic and airline mix, an assessment of the role played by the main London airports and how this has evolved over time, as well as addressing a number of prominent misconceptions. This chapter summarises these analyses and provides a foundation for the forecasts which follow. 3.2 DEVELOPMENT TO DATE Over the last 25 years the London airport system has grown at an average of 3.2% per annum. This includes the last six years of negative or flat growth. From a high of 140 million passengers, the global financial crisis and ensuing recession has had a significant negative impact on traffic volumes. Over ten million passengers a year were lost by 2010 and although the market has since partially recovered, total volumes are still below their previous peak. Exhibit 3.1: Annual Passengers at Main London Airports, 1989-2012 160 Annual Passengers, Millions 140 120 100 80 60 40 20 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 London City Stansted Luton Heathrow Gatwick Source: UK CAA In terms of market share, Heathrow and Gatwick have remained the two most significant airports in the London system in terms of size, although both of them have experienced a loss of market share Heathrow from a high of 66% in the early 1990s to around 52% today, and Gatwick from its high of 32% in 1989 to its current share at around 25%. Stansted grew rapidly in the early 2000s, raising its market share to 17% from 2% (and handling over 23 million passengers) but since the 2007 market peak has been declining in both 5 To date, a detailed study of cargo has been out of scope. 2013 10 ICF SH&E Page 17

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 at around 6-7% for the last decade, as its passenger volumes have hovered around the 9-10 million mark. London City is a niche airport limited by a short runway in the centre of London, but serving a relatively stable, high-end market segment. Although not immune to the downturn post 2008, it has recovered most of its traffic base and handled over 3 million passengers in 2012. Exhibit 3.2: Market Share of London Airports, 1989 to 2012 Annual Passengers, Millions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 London City Stansted Luton Heathrow Gatwick Source: UK CAA Prior to 2012, Southend Airport typically handled fewer than 5,000 passengers a year. Last year however, following the establishment of a small easyjet base at the airport, traffic volume has grown significantly to 128,000 passengers. The airport has stated plans to grow up to two million passengers per annum. This capacity was considered and included in the system modelling. 2013 11 ICF SH&E Page 18

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 3.3 LONDON TODAY London is the largest airport system in the world for both total and O&D passengers. O&D 6 passenger market exceeds the total of local and connecting passengers in any other world city market London5 million passengers is more than double any other EU location except Paris Exhibit 3.3: Terminal Passengers at Selected Airport Systems, 2012 160 Annual Passengers, Million 140 120 100 80 60 40 20 0 135 Trsf O&D 109 Trsf O&D 103 Trsf O&D 87 Trsf O&D 78 Trsf O&D Transfer O&D Market 61 61 56 Trsf 47 Trsf Trsf Trsf O&D O&D O&D O&D London: LHR, LGW, STN, LTN, LCY New York: JFK, EWR, LGA; Paris: CDG, ORY, BVA; Tokyo: HND, NRT; Chicago: ORD, MDW; Los Angeles: LAX, SNA, BUR, LGB Source: ACI, PaxIS The O&D traffic in London is made up of a range of markets, with Europe being by far the largest, accounting for over 60% of all airport passengers. O&D flows between London and Europe are larger than O&D flows between London and every other region combined. This is not surprising, given Europe represents the largest trade market for the UK, as well as the most significant tourism markets. Long-haul, at around 13 million passengers a year. The African market is comparable in size to the Far East (exc China) at over 5m annual passengers, while China today makes up under 1m annual passengers. 6 O&D refers to origin and destination passengers, ie those who start or end their air journey in London. 2013 12 ICF SH&E Page 19

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 3.4: London O&D Passengers by Market Annual Pax, Million 80 70 60 50 40 30 20 10 0 72 13 10 European markets make up 5 5 4 3 1.7 1.4 1.0 0.8 0.4 Europe N America Domestic Africa Far East Middle East Indian Sub Cont Australasia Caribbean South America Far East (China) Central America Source: PaxIS FY 2011/12 Of the 17 million or so airport passengers who use London to transfer between flights, the largest group is by far the Europe-North America segment. This reflects the very strong position of London in the North American market, with multiple daily services by both UK and US carriers. New York alone has 30 daily flights from Heathrow. The next best served European airport is Paris CDG with just 12 daily flights. Exhibit 3.5: Transfer Passengers using London Airports by Market 5.5m Airport Pax, Million 2 1.6 1.2 0.8 0.4 0 EUR-N Amer Indian-N Amer N Amer-UK EUR-UK EUR-Far East Middle East- N Amer Africa-EUR Australasia- EUR Africa-N Amer EUR-South Amer Far East-UK EUR-EUR Africa-UK N Amer Conx EUR Conx Doms Conx Source: PaxIS FY 2011/12 Of the top 13 transfer flows shown above, five include North America. 2013 13 ICF SH&E Page 20

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 3.4 HUB COMPETITION There are several definitions of a hub, each with some common characteristics. BAA defines a hub airport as having the following characteristics: Network carrier(s) and/or airline alliance(s) choose to base sufficient aircraft there to operate a hub and spoke strategy Appropriate facilities and configuration are available to handle efficient connections for passengers, their baggage and cargo The airport has the scale to deliver high connectivity (i.e. a large route network that is frequently served) The airport is based at an attractive geographic location, enabling ease of access for local demand and/or allowing the connection of transfer passengers between large international markets The airport has adequate runway capacity for the airlines to operate waves of arrivals and departures Most hubs are dominated by one home carrier, serving local as well as connecting markets, as shown below. Exhibit 3.6: Hubs Around the World, 2012 46% 46% London LHR 54% Amsterdam Frankfurt Chicago ORD Atlanta 72% 64% Newark Paris 56% 57% 70% 63% Abu Dhabi Dubai 21% 39% Beijing Hong Kong Shanghai 37% 31% 22% Singapore 24% 38% Note: % refers to leading carrier seat share Source: OAG (schedule Sept.2012) 2013 14 ICF SH&E Page 21

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Heathrow has a lower share of transfer traffic compared to other European hubs due to the large local market. Heathrow has a much larger local market than other hubs in Europe This results in an overall lower percentage of connecting passengers compared to other hubs, contrary to the popular perception of LHR having a hugely disproportionate number of transfers The lower percentage is also related to the severe capacity constraints at LHR, which has seen short-haul feeder services squeezed out and replaced with higher-yielding long-haul services Exhibit 3.7: Proportion of Transfer and O&D Traffic at Selected Hub Airports % Transfer %O&D 21% 23% 31% 31% 39% 52% 79% 77% 69% 69% 61% 48% Annual Pax JFK 49m LHR 69m CDG 60m MAD 50m AMS 47m FRA 56m Source: PaxIS Note: For international consistency, IATA PaxIS data used 2013 15 ICF SH&E Page 22

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013. BA accounts for 40% of traffic at its Heathrow hub This is connecting passengers alone accounting for 40% of FRA traffic This leaves room for other airlines to have a substantial presence at LHR as well and use its hub capabilities. This in turn has a positive effect on the overall connectivity of the airport Exhibit 3.8: Proportion of Passengers Handled by Dominant Airline at Selected Hubs 80% O&D Transfer 60% LH KL AF 40% IB BA 20% 0% Proportion of transfer pax for named airline FRA 70% AMS 59% CDG 49% MAD 55% LHR 37% Today, London demand remains strong, supported by several emerging markets. Growth to China has been driven by volumes travelling indirect (ie via other hubs) South American volumes have grown through both direct and indirect capacity 2013 16 ICF SH&E Page 23

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 3.9: Indexed Growth of Selected London O&D Markets 1.40 +25% +30% 1.20 1.00 via Other 0.80 0.60 via Europe 0.40 Direct 0.20 0.00 FY06 FY11 FY06 FY11 FY06 FY11 LON to Far East LON to Far East (China) LON to South America Source: PaxIS, FY06/07, FY11/12 Exhibit 3.10 shows the share of demand that is served either non-stop or which connects to reach their final destination. Of this latter group, there are those passengers who travel via a connecting point even though there would have been a direct option (usually for reasons of price or service quality [incl. frequency]) and those passengers who have no option but to connect somewhere. Most demand in mature markets travels direct, while less mature markets are often less well connected. Exhibit 3.10: Share of London O&D Passengers by Connecting Type 100% 90% 80% 70% 60% MSY HNL HRE DUR MNL HKT TPE XMN CTU ATQ AMD SJO PTY LIM BOG SCL Connect, with no direct service available from London 50% 40% 30% Connect, but direct service available from London 20% 10% Non Stop Demand 0% Middle East North America Africa Far East Far East (China) Indian Sub continent Central America South America 4m 13m 5m 5m 0.8m 3m 0.3m 1m : Market Size 2013 17 ICF SH&E Page 24

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Due to the aggressive growth of the hub carriers in the Gulf in recent years, the proportion of passengers who could have used London to connect but who do not has grown significantly. The India to North America market is a good example of this trend, having grown by 80% in just five years and Middle East.. Exhibit 3.11: Selected Heathrow Transfer Flows 3,000 +80% via Other Hub +40% 2,500 via LHR 2,000 Direct 1,500 +50% 1,000 10% 8% 500 15% 14% 13% 10% 0 FY06 FY11 FY06 FY11 FY06 FY11 Middle East to N America Indian to N America Africa to N America This is a trend we expect to continue, and discuss further in the forecast section. 3.5 COMMON MISCONCEPTIONS ABOUT THE LONDON MARKET As part of our work with GAL, we have been asked to investigate a number of common themes that have arisen since the Airports Commission was established. These have come from: The discussion papers the Commission has issued Reports issues by other airports Transport Committee and London Assembly meetings Statements in the media. While some of the arguments are valid, many present only a partial view and it has been our task to take a fresh look at some of these issues and present what we believe to be a more balanced analysis. Topic 1. It is clear that Heathrow is a hub airport and a significant transfer location for British Airways, its alliance partners and, to a lesser extent, for Virgin Atlantic. However, for the great majority of airlines operating at Heathrow, the airport does not represent a major transfer location. Many of these other carriers have transfer passenger feed at the other end of their routes and the availability of transfer passengers at London is not critical to the viability of their flights. This point is important since it has 2013 18 ICF SH&E Page 25

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 been widely and erroneously argued by Heathrow and others that transfer passengers at London are essential to the viability of new international routes. To illustrate this point, we have compiled route level statistics from the IATA database that details the distribution of passenger traffic by airline on routes between Heathrow and Mainland China. As shown below in Table 1, for non-uk carriers such as China Eastern, Air China, and China Southern, the percentage of their total onboard passengers on these routes that transferred at Heathrow was less than 3%. Clearly, the economic viability of these routes is not dependent on transfer traffic at Heathrow (although it is evident that transfers are very important at the China end of the journey). We note that for Virgin Atlantic, the transfer percentage on its Heathrow Shanghai route was less than 5%. Exhibit 3.12: Heathrow to Mainland China non-stop segments (YE Sept 2012) Flights between: Total passengers on segment Transfer % at Chinese airport Transfer % at Heathrow* Heathrow and Shanghai Heathrow and Beijing Heathrow and Guangzhou Heathrow and mainland China Virgin Atlantic 148,796 1.1% 4.1% British Airways 122,736 0.4% 29.8% China Eastern 85,591 51.8% 1.8% TOTAL 357,123 13.0% 12.4% British Airways 156,642 0.7% 19.0% Air China 137,856 35.9% 2.9% TOTAL 294,498 17.2% 11.5% China Southern 19,586 50.2% 2.6% TOTAL 671,207 15.9% 11.7% * includes a small % of passengers transferring at both ends of the flight. Source: IATA PaxIS year ended September 2012, (Carrier segments from OAG schedules, August 2012) 2013 19 ICF SH&E Page 26

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Topic 2: It is widely argued that the shortage of capacity in the London system is to blame for the UK having fewer direct connections to China than its European neighbours. Heathrow currently has direct service to Beijing, Shanghai and Guangzhou. On average just under 5 flights per day depart to these three destinations in mainland China. In comparison Frankfurt has 7 daily departures to the same destinations, just 2 more than Heathrow. Paris has the highest levels of direct service from Europe with just over 8 departures a day. At an annual level, Paris has around 3,000 annual flights to China whilst Heathrow has around 1,800 a difference of over 1,000 a year but on a service basis equates to around 3 departures per day. Exhibit 3.13: Top Chinese Cities served from selected European Airports Annual Departures Weekly Departures Average Daily Departures Heathrow 1,773 34 4.9 Paris 3,076 59 8.4 Frankfurt 2,555 49 7.0 (served non-stop from Europe one way) In 2003 Paris already had significantly more capacity to China (around 1,200 flights a year, compared to 900 from Heathrow) In the same way that we would expect greater service levels between Heathrow and Hong Kong, or Madrid to Buenos Aires than other city pairs, the market fundamentals for links are stronger between Paris and many emerging markets in China. In contrast, services to other (long-haul) emerging markets such as India have been able to grow significantly at LHR as airlines have been able to attain slots from the slot pool or through slot trading. Carriers such as BA could have chosen to increase capacity to China instead of other markets, but for commercial reasons chose not to do so. Wuhan Example Heathrow states that to emerging Mainland China markets such as Chengdu, Hangzhou, Xiamen and Wuhan. following: Wuhan hosts more than 50 French companies including large companies such as PSA, Faurecia, Hutchinson, Valeo, Alcatel, Alstom, Total, Carrefour, Air France, SDV, and Groupe Accor. This Foreign Direct Investment represents over one third of total French investment in China, the highest among all China cities. The local market size of Paris-Wuhan is therefore naturally much larger than that to London or Frankfurt. 2013 20 ICF SH&E Page 27

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Air France is a founding member of the SkyTeam Alliance. China Southern and China Eastern, two largest carriers, are also SkyTeam members, and each airline operates a large network of domestic China markets at Wuhan. One may question if lack of nonstop services to China is the result of other factors such as: Oneworld and BA do not have a airline partner based in China (Air France has two). SkyTeam is much more significant than Oneworld in these markets and often has a presence at these end points to drive transfer feed at the Chinese end of a route Until recently, BA chose not to serve Seoul and therefore one of Asia economies. BA only recently pursued Mainland China service at Chengdu with China Southern support rope connecting passengers from the Far East to European markets involves a significant and inconvenient backhaul connection. (We note that via Paris using Air France with whom they have limited ties with at an alliance level) Air China, a Star Alliance founding member, recently added a Beijing to Gatwick nonstop service. This is an example of a Chinese 2013 21 ICF SH&E Page 28

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Topic 3: The importance of thinner routes at Heathrow is overstated 83% of long-haul departures at LHR are serving routes which have two or more flights a day, with over half of all movements being dispatched to just 16 destinations Of the top 10 airports served, only one (Boston) is not a recognised hub. London O&D traffic alone to these destinations is easily adequate to justify multiple daily services, without reliance on transfer passengers While some future LHR growth will be based purely on its hub connectivity, these routes are expected to remain a small minority of the total, especially as we expect short-haul feeder routes to continue to be displaced by more lucrative long-haul services Exhibit 3.14: Distribution of Heathrow Long-haul Movements by Daily Departures Departures Per Day Destinations Served Total Daily Frequencies 5+ 16 125 4-5 4 17 3-4 9 30 2-3 12 26 1-2 22 25 <1 27 14 Total 90 237 2-3/day 11% 1-2/day 11% 3-4/day 12% 4-5/day 7% <1/day 6% 5+/day 53% Topic 4: Which Markets Could be Served from Gatwick? In response to many arguments stating that long-haul routes could only be served from Heathrow or another London hub, ICF SH&E has analysed the top 200 London O&Ds. Of these, we identified those with the most credible chance of being served. The key criteria used were: Market size today Expected market growth Current non-stop service from London onnections History/recent experience Competition and airline capacity The first table shows the markets which are not currently served from London which we have identified as likely prospects. It should be noted that we include markets we consider to be less likely 2013 22 ICF SH&E Page 29

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 in grey. This is done to illustrate that O&D market size is not in itself sufficient to make a route attractive. Exhibit 3.15: Top Unserved Markets from London with Gatwick Potential City Country Annual One-Way LGW potential? O& D Pax, 2011/12 Manila Philippines 123,780 Yes - Growth market & Airline(s) based at other end Amr itsar India 66,326 No lack of based carrier & secondary markets in India dominated by Emirates Ahmedabad India 64,604 Kathmandu Nepal 52,111 Harare Zimbabwe 50,009 Yes - Has been served previously at LGW Cochin India 49,148 Phuket Thailand 43,118 Yes - Strong outbound leisure market. Chiang Kai Sheck Taiwan 43,014 Maybe - currently served by EVA Air 1-stop itinerary at LHR Durban South Africa 37,525 Already well served by EK via DXB Goa India 36,375 Yes - Strong outbound leisure market. Jakarta Indonesia 34,970 Yes - Growth market & Airline based at other end (Garuda) Lima Peru 31,311 Yes - Growth market & Airline based at other end (LAN) Bogota Colombia 31,062 Yes - Growth market & Airline based at other end (Avianca) New Orleans United 30,392 States Osaka Japan 30,089 Maybe - Has been served previously Denpasar-Bali Indonesia 29,495 Yes - Strong outbound leisure market. Santiago Chile 29,475 Yes - Growth market & Airline based at other end (LAN) H onolulu United 29,091 Yes - Strong outbound leisure market. States I ndianapolis United 27,307 No States Kolkata India 27,170 No, only a smaller secondary hub for Jet Airways (Calcutta) Austin United States 24,446 No Source: IATA PaxIS, ICF SH&E analysis In the second table, we have identified those markets which are already served (either from Gatwick, but in most cases from Heathrow) Those markets which are already served from Heathrow today will struggle to grow at the airport unless additional capacity is created. Some carriers are likely to be open to moving to Gatwick or splitting operations between the airports. Alternatively, additional capacity from new airline entrants to a market will be attracted to new capacity at LGW. 2013 23 ICF SH&E Page 30

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 3.16: Top Long-haul Markets (currently served) with strong LGW potential Region M arkets Comments African Hubs Asian Hubs Johannesburg, Nairobi, Addis Ababa, Cairo Hong Kong, Bangkok, Singapore, Tokyo, Kuala Lumpur, Beijing, Seoul, Shanghai, Guangzhou Strong market growth forecast, combined with Network carriers or strong local markets to sustain service Significant opportunity to markets where high growth rates are assumed, able to grow London market through Gatwick presence. Strong inbound growth Indian Hubs Delhi, Mumbai, Bangalore Likely to be attractive in longer term as recent growth in direct UK capacity still establishing itself Mid East Hubs Dubai, Abu Dhabi, Doha, Bahrain, Tel Aviv Further growth expected as carriers seek to grow their presence in the core London market N American Hubs New York, Toronto, Miami, Washington, Chicago, Atlanta, Dallas/Fort Worth Several of these points have already been served from LGW in the past. IN the absence of future LHR capacity LGW is considered an option in the mid to long term C&S American Hubs Sao Paolo, Buenos Aires, Mexico City Strong market growth not met at LHR, expect carriers to develop London presence through LGW in mid term This list excludes large O&D markets which lack connections at the other end of the route and thus should ensure that sufficient transfer flows are available. 2013 24 ICF SH&E Page 31

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 4 FUTURE DEMAND 4.1 INTRODUCTION Future demand is the primary determinant of the need for future airport capacity in the London system. As such, an assessment of what is likely to drive future travel demand is a cornerstone of this study. In this chapter we present an overview of the drivers considered, their relative influence, and the consequent development of both O&D and transfer demand over the long term. We also present our unconstrained air traffic forecasts for London. 4.2 PRINCIPAL DRIVERS Demand Side In coming years and decades some of the key trends impacting the global demand for air travel will include: Slowing economic growth in mature economies Relatively rapid growth in less developed economies, slowing as the economies mature Population and demographic trends growth, age profile, increasing incomes, global mobility/dispersion of families Continued globalisation and liberalisation of markets, increasing international trade and investment Rise in international tourism, particularly to/from the previously less-developed countries These factors mean that trends which are already evident such as growth rates below 3% in the mature markets of Western Europe and North America, and rates higher than 3% in the less mature markets are likely to continue at least into the medium term (next 15 years or so). Over the much longer term, even markets which are currently in their infancy - particularly with respect to demand to/from the UK - will mature. The forecasts reflect these trends and are applied as maturity factors of over various profiles in addition to the relevant independent GDP forecasts to drive each main market segment. Supply Side Airline constraints, strategy and development will also have an important bearing on the future shape supply-side considerations include: Airline business models and fleet growth Rising oil prices and environmental policies aimed at aviation New technologies in aircraft enabling longer sectors to be served directly 2013 25 ICF SH&E Page 32

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 New, smaller and more efficient aircraft, making previously unattractive routes economically viable, and relying less on transfers to fill These supply side factors have been considered and reflected in both the unconstrained forecasts (through adjustment to growth profiles and the introduction of direct flights between regions) and the constrained forecasts, where more specific airline business model and fleet mix assumptions were developed in order to reflect the most likely supply evolution in a constrained airport systems. These are discussed further in the following section. 4.3 APPROACH TO FORECASTING LONDON DEMAND The starting point for the London level forecasts has been a segmentation of the total market into four broad categories, which are each comprised of more specific markets. Group one, the largest segment, is the London O&D segment, which accounts for over 85% of airport passengers. These are passengers using London airports because their journey starts or ends in London. Groups two to four are transfer demand segments that fly through London on their way from their true origin to their true destination. They are further segmented according to their main flows. In total, they accounted for around 15% of total London airport passengers, or around 17 million in 2012. Exhibit 4.1: Main market segments using London airports 1. London Demand: Annual Pax, Mill 20 18 15 13 73 10 8 5 3 0 12.7 9.7 London O&D Demand ~118m per year 5.2 4.7 3.5 3.1 1.7 1.4 1.0 0.8 0.4 European markets make up over 60% O&Ds London O&D demand is by far the largest demand segment 2. UK-World: 3. Europe-World: 4. World-World: ~4m per year ~11m per year ~2m per year?how??via? LHR? Direct? Gulf??how? Source: ICF SH&E, PaxIS FY2011/12 Source: PaxIS 2011/12 Europe? London Demand (O&D) The London O&D forecasts are based on econometric relationships between passenger volumes in each segment and the relevant real GDP profile, reflecting also the broad share of passengers who 2013 26 ICF SH&E Page 33

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 UK GDP is going to be a less influential driver. The main highlights of the London O&D forecasts are as follows: London Europe (62% of current London O&D) is forecast to remain the largest O&D market but is expected to grow relatively slowly due to market maturity and saturation. London North America (11% of current London O&D) is also mature and is forecast to grow at a little over 1% a year over the next decades. The fastest growing O&D flows are going to be London Far East (incl. China), London Central America and London South America. However, even with strong growth for the next 40 years, these three market segments combined will be smaller than the London North America market today. Transfer Demand The approach to forecasting London transfer demand has been to consider the markets which could credibly connect in London (i.e. not North America to South America, or Japan to Australia), and then to forecast both the growth in total demand in these markets and the share. Note that although London is an important aviation hub, its share of the largest flows is small; most people already fly direct from origin to destination, and many of those which connect choose to do so at an alternative hub. This is illustrated on the following chart. Exhibit 4.2: Annual one-way O&Ds in Relevant Markets, Millions 300 250 200 <1% via LHR Via LHR Flow over LON Size LHR share 2011/12 Europe incl Eur-Eur, Eur Africa, Eur- India etc Around 480m oneway O&Ds, of which Eur-Eur 215m Less than 1%. 86% fly direct 150 100 Direct or via other hubs North America Incl N.Am Eur, N. Am Mid East, India, Africa Around 28m oneway O&Ds, of which N.Am Eur 21m Around 7% overall. 41% fly direct 50 7% via LHR 3% via LHR UK Incl UK N. Am, UK Eur, UK India etc Around 26m oneway O&Ds, of which UK Eur 22m 3% overall, 14% excl UK Eur 83% fly direct (35% ex Eur) 0 Europe - World North America - World UK - World Source: PaxIS, 2011 2013 27 ICF SH&E Page 34

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 - North America market is due to a combination of geographical and historical reasons. The UK is the first European landfall 7 when arriving from the U.S. This makes is furthest West it has an advantage over other hubs at Frankfurt, Paris, Madrid or Amsterdam. Over non-eu flying today connects Heathrow with North America. However, it has been widely shown that the centre of gravity for global economic activity continues to shift eastwards. It is important to recognise that the new geographic centre of growth makes the UK the furthest western European point turning future Heathrow and ALL of Europe into a natural local connect markets but it is primarily an O&D market served by a nonstop hub route. Changes In the location of world economic activity will strengthen Gatwick strategy. As China and Southeast Asian economies emerge and expand, London travel will shift from having a transatlantic focus to having a Middle East and Asia focus. London will be redefined geographically as a far western origin/destination market for travel to/from China/Asia. This will be a significant future air travel pattern change which will impact London, the UK and Europe. The tr ansfer demand forecasts indicate that the markets which generate tr ansfers through More robust growth in the relevant O&D flows is driven by the expected rapid rise in e.g. North America Africa, Europe India, and UK Far East segments North America to Europe flows are well served via London LHR share of Eur-US: 7% London is largely expected to maintain its share of the total Europe North America market The America India market will be affected by both Middle East hub competition and longer range aircraft, with a negative impact on Heathrow share Competition from other hubs in both Europe and the Middle East On the Western edge of Europe, London is poorly suited for Eur Eur transfers LHR share of Eur-Eur: 0.03% Europe Far East transfers include backtracking LHR share of Eur Far East: 2% 7 overflying Shannon now that aircraft have the range 2013 28 ICF SH&E Page 35

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 North America market Europe Europe and Europe Middle East connections are forecast to decline in absolute terms due to more direct flights The passenger markets which can use London to connect/transfer will include some exhibiting strong growth, such as North America Africa, Europe India and the UK Far East segments. However, irrespective of capacity constraints in the London system, technology and competition trends are al share of some of these markets, particularly where London does not have a geographical advantage. 4.4 FORECASTS FOR LONDON The total unconstrained passenger forecasts are summarised below. As previously described, they are driven by the underlying economic outlook and relative market maturity of each O&D market, whether they are those which terminate in London or those which use London as a transfer point. In addition, for these transfer markets, the likely trend of more direct flights and more competition from alternative hubs has been reflected, which explains the transfer forecast plateaus in the second half for the forecast period. As shown previously, over the last 25 years the London market has grown at around 3% per annum. The forecast for the next 40 years is 1.5%. This still yields another 110 million passengers per year by 2052 Exhibit 4.3: Unconstrained London Passenger Forecasts, 2012 2052 (millions) 300 250 200 150 100 50 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 London O&D Demand Other Long Haul Cnx Flows Europe Cnx Flows UK-World Cnx Flows Airport Passengers, Million 2012 2032 2052 20yr CAGR 40yr CAGR London O&D Demand 117 170 215 1.9% 1.5% Europe Cnx Flows 10 14 15 1.6% 0.9% UK-World Cnx Flows 5 7.5 9 2.4% 1.7% Other Long Haul Cnx Flows 3.2 8 8.5 5.0% 2.5% Total 135 199 248 2.0% 1.5% Source: ICF SH&E 2013 29 ICF SH&E Page 36

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 What these forecasts indicate is that between today and 2040 demand will increase by about 85 million passengers. The majority (over half) of this demand will be to/from Europe and transfer demand will represent around 15% of passengers. In the near term transfer flows will be buoyed by decline. Between 2025 and 2040 around 45 million passengers will be added, of which less than 10% will be transfer additions. A summary of growth by market is included in the Appendix for reference. 4.5 COMPARISON TO OTHER FORECASTS We have compared our unconstrained forecasts to the latest figures from the DfT (January 2013). At the total level, they are broadly similar until the mid 2030s, beyond which the DfT figures are higher. Exhibit 4.4: Comparison of ICF SH&E and DfT unconstrained London Forecasts 300 DfT (2013) ICF (2012) 250 200 150 100 50 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Source: DfT, ICF SH&E Looking at the market segments in more detail, most of the discrepancy arises in the mature markets. It should be noted that the DfT market forecasts are for the whole of the UK (their London forecast is not segmented in this way), and therefore the absolute numbers are not a valid basis for comparison. Furthermore, it could be argued that the non-london market is less mature than the London market and will thus capture a larger share of future growth. However, in the absence of London-specific market detail, the relative rates of growth across the segments are broadly comparable at the unconstrained level. 2013 30 ICF SH&E Page 37

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 4.5: Comparison of ICF SH&E and DfT unconstrained London Forecasts Market Detail DfT (UK), M Pax ICF (London), M Pax Growth by 2050 2010 2050 2012 2050 DfT ICF Domestic 27 62 10 15 129% 55% Europe 119 279 73 123 135% 69% (Rest of) Africa 6 11 5 11 104% 104% United States & Canada 14 33 13 19 143% 50% Caribbean & S. America 3.1 7.8 2.7 7.6 156% 177% Middle East 5.3 15.9 3.5 7.7 199% 121% Indian Sub-continent 2.7 7.1 3.1 8.4 158% 171% Far East 4.3 11.4 5.5 15.9 166% 187% Australasia 1.6 3.9 1.7 3.7 150% 111% Total 182 432 118 206 137% 81% Doms/EUR: DfT more than doubles ICF 55-70% growth ICF consider theses markets much more mature than the DfT N America: DfT more than doubles ICF 50% growth ICF does not foresee that the N. Atlantic market will realistically double in the next 40 years. There are already 30 daily services to NYC today! Emerging: DfT more than doubles Markets ICF more than doubles ICF growth rates are often more comparable to the DfT for the fast growing economies Source: DfT, ICF SH&E Exhibit 4.6 below summarises the growth rates for each segment for both sets of forecasts. ICF SH&E by over 80% by 2050. demand is forecast to grow by nearly 140%. At the London level, the difference in lower, with the DfT London total growing by 110% by 2050. Exhibit 4.6: Comparison of ICF SH&E and DfT Forecasts by Market (2012-2050) 0% 50% 100% 150% 200% Domestic Europe Rest of Africa United States & Canada Caribbean & S. America Middle East Indian Sub-continent Far East Australasia Total DfT (UK) ICF (LON) Source: DfT, ICF SH&E From the summary of available airport capacity today, it is clear that demand will exceed capacity. How the available capacity is likely to be filled up and how any new capacity is likely to satisfy unmet demand is the focus of the following section. 2013 31 ICF SH&E Page 38

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 5 GATWICK FORECASTS 5.1 INTRODUCTION Traffic at Gatwick in coming years will be determined by a number of factors. One of the key variables will be total passenger demand for travel to/from/via London. Other factors will also play an important role and will vary according to where additional capacity is added. : Capacity. In a market where unconstrained demand exceeds supply, actual traffic will in large part be driven by where, when and how much additional capacity is added. For example, if Gatwick builds another runway, its share of the London system will eventually increase. Wherever capacity is added, the years preceding the opening of the new runway will involve a period of active business development aimed at attracting new services and at enticing existing service to move from other, more congested airports. This will result in a step-change in traffic over years immediately following the opening of new capacity, although it will take a number of years for airlines to increase their capacity to match the unconstrained demand. Attractiveness to airlines and passengers. Airlines will operate to airports where they expect to maximize the profitability of their operations. This decision will be based on both cost and revenue factors and will vary according to airline operating model. For example, a low cost carrier will typically be prepared to pay less for airport charges than a full service account for a larger share of their operating costs. Likewise, some passengers will be willing and able to pay higher fares to fly from airports which they consider more attractive, and surface access improvements will undoubtedly make the airport more attractive to a number of passengers, including high yielding business traffic. Traffic Profile. The size of an airport and the airlines using it will also influence the future traffic profile. Heathrow, for example, is home to British Airways, the network carrier. Network airlines operate by serving both local and connecting traffic flows via their home hub, and they typically have a high proportion of transfer passengers on their services. The majority of the transfer flows at Heathrow involve BA. Other carriers use Heathrow largely for its access to the London market. 8 Gatwick does not expect BA to move or to split its hub from Heathrow and we would agree that this is a reasonable ments regarding its strategy. However, Gatwick does anticipate further significant growth in both short-haul and long-haul traffic, 8 Source: ICF SH&E analysis of IATA PaxIS data, 2012 2013 32 ICF SH&E Page 39

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 which will not only serve the dominant O&D market in London, but will naturally result in additional passengers using the airport as a transfer point. 5.2 SCENARIOS The capacity scenarios under consideration set the main forecast constraints. Exhibit 5.1: Summary of Capacity Scenarios Modelled Scenario Base Description No Airport Capacity developments 2 Gatwick opens a close spaced runway in 2025 3 Gatwick opens a wide spaced runway in 2025, operated in Segregated Mode 4 Gatwick opens a wide spaced runway in 2025 operated in Mixed Mode 5 Heathrow opens R3 in 2030, assumed to be restricted to 605k ATMs Source: GAL, ICF SH&E For each of these scenarios, two sets of forecasts have been developed, one in late 2012 and one in May 2013, representing a range of assumptions. The 2012 forecasts assume a continuation of airline operating models, preferences and passenger behaviour from historically observed patterns. The 2013 forecasts were produced following the re-evaluation of inter alia: The ultimate capacity of Gatwick in each of the scenarios The attractiveness of Gatwick to airlines and passengers The rate at which a new Gatwick runway is likely to fill The price impact of increased charges associated with a second runway. This second set of forecasts is continues to improve its service levels, surface access and thus attractiveness to airlines and passengers. It also more realistically reflects the rate at which a second runway would be utilised, recognising that even in a system with unserved demand, airlines and passengers will take a number of years to take up the step-change in capacity. 5.3 CAPACITY, SPILL AND RECAPTURE The unconstrained demand forecast for the London market is assigned to the various airports that serve the London system, however to produce a realistic set of outputs it is vital that each airport capacity is considered. This work has captured current and future capacity constraints considered significant in the London market. In addition, assumptions of the trends in average aircraft size, runway utilisation levels and the mix of long/short haul volumes have been developed at an airport level. Heathrow illustrates the 2013 33 ICF SH&E Page 40

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 importance of this: although the airport is effectively operating at its movement limit there is still significant scope for growth through larger aircraft and a switch from short haul to long haul markets. We believe these assumptions provide a reasonable and realistic view of future passenger and movement caps. The unconstrained demand is assigned to individual airports for allocation on a market basis from a baseline of 2012. This demand is readily allocated to the airport when excess capacity exists. However, when there is insufficient supply to meet forecast demand, spill at an airport level is predicted. Exhibit 5.2: London Demand Model Overview Source: ICF SH&E Typically some markets are assumed to spill more readily than others. We have already seen long haul flying squeeze out some domestic & short haul markets at Heathrow, driving a change in mix. Spill of this unconstrained demand is still retained largely within the London system; other airports are able to compete for this traffic assuming their own capacity constraints are not breached. Constrained forecast outputs are created at an airport level, and a London system level. Various market segments are split out by airport. 5.4 SUMMARY OF FORECASTS Due to the large number of scenarios modelled, and the range of outputs for each scenario, the following discussion will focus on the Vision Forecasts. Other forecasts are included in the appendix. First however, we present a snapshot in 2050 for London and illustrate the general differences in forecasts for Gatwick under the two sets of assumptions. Exhibit 5.3 shows the total number of passengers forecast at the London airports in 2050. It may be seen that Scenario 4 (Gatwick wide-spaced runway in mixed mode) offers the greatest capacity and thus satisfies most of the unconstrained demand. Due to the different assumptions under the two sets for forecasts, the Gatwick bars have two segments, one representing the forecast delivered in late 2012, and the other the forecast delivered in May 2013). The Vision forecasts (delivered May 2013) are the higher in all cases in 2050. 2013 34 ICF SH&E Page 41

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 5.3: London Passenger Forecasts under Various Scenarios, 2050 Source: ICF SH&E To illustrate the different traffic profiles under the two sets of forecasts Exhibit 5.4 shows the traffic forecast for Gatwick only under Scenario 3, with passengers segmented by haul. The dashed black line shows the assumed passenger capacity cap. Until 2025, the forecasts are the same. In the first decade after the opening of R2, the Vision forecasts are comparable and in some years lower than the status quo forecasts. This is due to the improved assessment of the rate of fill of new airports, which resulted in a slightly more conservative rate of build-up. This is described in more detail at the end of this chapter. This reverses in later years as the Vision forecasts grow to a higher ultimate ATM figure and include a higher proportion of long-haul passengers, increasing the average passengers per ATM. 2013 35 ICF SH&E Page 42

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 5.4: Comparison of Status Quo and Vision Forecasts for Scenario 3, Gatwick Scenario 3 - Original Scenario 3 - Vision Passengers (M) 100 80 60 Long Haul Short Haul Domestic Runway 'Cap' LGW Passengers Passengers (M) 100 80 60 Greater LH volumes driven by ability to serve all segments 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Measure Today SC3 Original SC3 Vision Passengers (2050) n/a 75m 82m Years to fill n/a 15 13 Long-haul (volume/proportion) 6m / 18% 20m / 27% 30m / 36% ATMs (estimate) 240k ~450k 490k Share of LON Traffic 25% 35% 35% 90 80 70 60 50 40 30 20 10 0 2025 LGW R2 opens SC3 (Original) SC3 (Vision) Source: ICF SH&E We now take each of the capacity scenarios in turn and assess the likely profile of demand at Gatwick and in London as a whole. Base Case No new runways in the South East The Base Case assumes that no new runway capacity is added during the forecast period. Heathrow is already virtually full year-round, and Gatwick is approaching capacity in the summer peak; additional growth at these airports will come mostly from larger aircraft carrying more passengers. By 2025 Gatwick could accommodate another ten million passengers, benefiting from both underlying market growth and traffic that is spilt from Heathrow. Beyond 2025 however, its growth will be very limited, with its single runway not expected to handle more than 48 million passengers by 2050. The share of 2013 36 ICF SH&E Page 43

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 long-haul traffic at Gatwick will increase significantly, from around 18% today to over 30%, as this rapidly growing market segment looks for access to the London market. All London airports will also be used as intensively as airline business models and passenger demand will support. However by 2050 traffic will be significantly constrained, with over 50 million passengers who would have used the airports not being accommodated. These passengers are likely to use other airports in the UK or overseas, other modes of transport, or not make trips at all. Exhibit 5.5: London constrained traffic London forecast Summary to 2050 Base (passenger millions) 300 250 200 150 100 50 0 CAGR to 2050 51 29 37 48 84 Today 2025 2030 2040 2050 Others +2.0% STN +1.9% LGW +1.0% LHR +0.5% Spill Source: ICF SH&E In the subsequent Gatwick scenarios (2-4) we have modelled one runway at Gatwick, assuming no other runways are provided until the 2040s at the earliest. This is consistent with the market total forecasts which indicate that one additional runway will be sufficient until then. Scenario 2: Gatwick R2, Close-Spaced The opening of a close-spaced runway at Gatwick would add approximately 25% of runway capacity at the airport (capacity rise is limited as the two runways cannot be operate completely independently) and would be used up within 7-8 years. The share of long-haul traffic is forecast to increase to over 30% from 18% today, as the fast-growing long-haul markets displace some of the more mature domestic and short-haul segments to other rise of 5% compared to today. From the mid-2030s the airport would be full and growing at only a very modest rate, afforded by marginal increases in aircraft sizes and load factors. Scenario 3: Gatwick R2, Wide-Spaced, segregated mode In this scenario, the two runways can be operated independently and are assumed to be operated in segregated mode as Heathrow is today. Gatwick will be able to handle up to 490,000 ATMs per year 2013 37 ICF SH&E Page 44

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 at full maturity. This assumes further peak spreading brought about by more year-round services. Initially, the forecast assumes that current seasonality profiles are maintained and this spreading occurs gradually as the airport fills again over the following 15 years or so. By 2050, long-haul volumes are forecast to reach 27-36%, depending on forecast set (with the Vision forecasts achieving the higher percentage due to greater attractiveness of Gatwick relative to today). Increasing volumes of long-haul operations also mean that the runways are able to handle more passengers for the same number of ATMs. In this scenario, ultimate passengers can thus exceed 80 million. Scenario 4: Gatwick R2, Wide spaced, mixed mode This scenarios brings the largest runway capacity to Gatwick. The first years of the forecast are identical to the segregated mode scenario but over the long term the operational flexibility afforded by mixed mode yields a further 5-8 million passengers a year. The Vision forecasts reach 87 million passengers by 2050 without reaching the movement cap, which is estimated at 540,000 ATMs Similar to the other sce-haul traffic share is forecast to reach 27-35%, but due to the larger overall volumes this equates to 30 million annual passengers by 2050. In this scenario, total Gatwick volumes exceed that of Heathrow (which is assumed not to expand its runways) and virtually all of the unconstrained demand is accommodated in the London system. Scenario 5: Heathrow R3, opens 2030, capped at 605k movements In addition to Gatwick scenarios described above, ICF SH&E has also modelled the likely impact of a third runway at Heathrow. Working only with publicly available information and relying on some key assumptions from GAL, the scenario is considered to be illustrative and would be materially different nway in a different manner. The key assumptions in this scenario are that the third runway would open in 2030 and that the airport would face a cap on annual ATMs of 605,000, similar to the kind of constraint it faces today (with 480,000). Gatwick is not assumed to add runway capacity in this scenario. Due to the later opening of the runway than in the Gatwick scenarios, the gap between capacity and unconstrained demand is larger in this scenario. When the runway opens, it is expected to capture a meaningful share of unmet demand and also to attract some of the traffic, particularly long-haul, which was operating at Gatwick. After a few years however the gap left by this competitive hit is forecast to be filled with short-haul traffic, as this segment will more likely be deterred by the higher costs at Heathrow. Due to the movement cap assumed, the incremental capacity is less than under a Gatwick R2 scenario and thus the total number of passengers, and share of unconstrained demand, that is satisfied by this scenario is also lower. Gatwick fills its one runway and remains full throughout the forecast period. However its long-haul share is negatively impacted, but still reaches 23-25%, from 18% today. Exhibit 5.6: London Passenger Forecasts under Various Scenarios, 2050 (passenger millions) 2013 38 ICF SH&E Page 45

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 300 250 200 150 100 50 0 Source: ICF SH&E 2050 London Airport Capacity 236 240 203 220 225 30 30 30 30 30 40 40 40 40 40 48-50 60-66 75-82 80-87 48-50 84 84 84 84 106 SC1 SC2 SC3 SC4 SC5 Others Stansted Higher Bound Gatwick Heathrow Unconstrained Demand 5.5 DISCUSSION OF RESULTS AND KEY ASSUMPTIONS We believe the following factors are the principal drivers of the constrained forecasts, and thus have received considerable attention over the last few months in order to ensure their reasonableness and correctness. Unconstrained London forecast affects volume and constituent parts of traffic in the system Capacity assumptions since demand exceeds capacity in future years, incremental capacity is key driver of realised volumes Attractiveness of Gatwick to London passengers and airlines determines what share of unserved demand the airport will capture; this can vary by market segment Rate of fill of the new r unway affects how quickly unserved demand is satisfied at Gatwick Pr ice the attractiveness of that airport to airlines and passengers Unconstrained Forecasts Over the last 20 years the London market has grown at around 3% per annum. The forecast for the next 40 years is 1.5%. This still yields another 98 million passengers by 2052. As already discussed, the UK is considered a relatively mature market for aviation characterised by high propensities to fly and relatively low rates of growth. However, many of the markets which the UK connects to are far from mature and therefore international traffic, particularly to/from emerging markets, is expected to outpace domestic and intra-european traffic growth. 2013 39 ICF SH&E Page 46

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 It is difficult to know with any certainty exactly how much demand for air travel will be in the next 40 years. However, what the above forecasts show is that even at growth rates more modest than the ore modest than aircraft manufacturers) mean that demand will outstrip airport capacity in the coming decades. Capacity Assumptions Capacity is a complex issue for forecasting, as it is defined in several different ways and there are numerous inputs and assumptions to consider. In the above forecasts, we have relied on guidance from GAL and NATS regarding the maximum hourly capacity of the various runway options and have then translated this into: a maximum theoretical limit on an annual basis (ie. every hour of the year operated at that limit) a more realistic physical limit (ie. every operational hour operated at that limit keeping an assumed maximum utilised level, taking into account the degree of de-peaking of traffic and the hourly ATMs that may be expected throughout the operational hours of a day assuming broadly the same degree of seasonality and slot utilisation as today These four measures are in descending order of total capacity and are referred to in the discussion below, which explains the reasoning for the capacity assumptions made for Gatwick in Scenario 3. The purpose of the following discussion is to demonstrate how G consistent with its positioning as a more resilient option than Heathrow today and in the future. In particular, this relates to the level of utilisation in winter months, when bad weather events present the most common test of resilience at the airports. To make a like-for-like comparison between Heathrow and Gatwick we need to ignore current scheduling limits and planning caps and look at the theoretical maximum capacity of both airports. This has been done by applying maximum hourly scheduling limits across the day and making an and Gatwick is lower at 69%. The single runway Gatwick forecasts show growth to 45mppa by the early 2020s and this implies 84% utilisation almost the same as Heathrow today. 2013 40 ICF SH&E Page 47

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 5.7: Heathrow and Gatwick Physical and Utilised Capacity Caps Annual ATMs (k) 600 500 400 300 200 100 17% LHR 2 Runways 568 480 470 Physical Limit Planning Cap Utilised (2012 Actual) Annual ATMs (k) 600 500 400 300 31% 200 100 0 Utilised (Today) LGW 1 Runway 347 240 366 16% 300 Physical Limit Utilised (if LGW at 45mppa) 0 Today 55 ATMs Source: SH&E Looking at the summer and winter seasons separately shows that a single-runway Gatwick is not expected to get to the same level of utilisation as Heathrow does during the winter. In 2012, Gatwick will have a higher level of utilisation in the summer as it is not constrained by a planning cap. By the time Gatwick gets close to 300k ATMs per year, it can still maintain a lower winter utilisation, ensuring greater resilience. Exhibit 5.8: Heathrow and Gatwick Physical and Utilised Capacity Caps Daily ATMs 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 LHR 2 Runways Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Physical Limit Planning Cap Daily Avg Utilised (84% in Summer, 81% in Winter) Daily ATMs 1,200 1,000 800 600 400 200 0 LGW 1 Runway 300k ATMs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Physical Limit Utilised (88% in Summer, 73% in Winter) Source: SH&E Three runways at Heathrow could in theory accommodate well over 700k ATMs per year, if they were used as intensively as possible. However, any additional runway at Heathrow is assumed to face operating restrictions, as it does today. 2013 41 ICF SH&E Page 48

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 5.9: Heathrow and Gatwick Physical and Utilised Capacity Caps in Future (k) ATMs 900 800 700 600 500 400 300 200 100 0 Heathrow: Runway Capacity 568 480 Actual Planning Cap 849 605 Physical Limit Assumed Planning Cap (k) ATMs 600 500 400 300 200 100 0 Gatwick: Runway Capacity 455 347 300 242 Physical Limit Utilised Physical Limit 577 490 Today R3 Today 55 ATMs R2 Source: SH&E A second runway at Gatwick provides more incremental capacity (150-190k) than a third runway at Heathrow, as the latter is assumed to be capped at 605k for environmental reasons. At the same time, Gatwick than Heathrow at 480k today as it is able to maintain its lower winter utilisation levels. Conclusion: Keeping consistent assumptions a second runway at Gatwick would support more incremental capacity than a third runway at Heathrow while being more resilient than Heathrow today. 2013 42 ICF SH&E Page 49

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Attractiveness of an Airport Airlines and passengers value airports for many different reasons. Some of these are summarized in the following chart. Exhibit 5.10: Factors affecting Airport Attractiveness Airline perspective Large, stable demand Strong yields Availability of slots Low airport charges Alliances & Partnerships Catchment Competition Passenger perspective Location Routes & Frequency Price of fares Ease and cost of access Facilities Processing (security etc.) Operational Performance Source: SH&E Assumptions regarding the future attractiveness of an airport have a significant bearing on the has indicated that it still maintains historically establi term projections. This would suggest that it anticipates airlines and airports to behave the same way for the next 30 years as for the last 30 9. While this could of course happen, it is just as likely that some of these behaviours will change, particularly in a competitive market in which Gatwick is actively pursuing improvements to its attractiveness to airlines and passengers. rket share include: Catchment enlargement through improved surface access Airline partnerships and greater numbers of self-connecting passengers Price competitiveness Service quality improvements 9 Such an approach, while reasonable, would not have forecast the rise of low cost carriers and is alos, importantly, unlikely to reflect future trends such as LCCs connecting to full service airlines, or starting long-haul operations or other competitive dynamics 2013 43 ICF SH&E Page 50

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Airline / alliance move from Heathrow to Gatwick strategic vision is to be at least as attractive to airlines and passengers as Heathrow over the medium to long term. Provided its stated aims are realised, there is no fundamental reason why it cannot capture a larger share of the London market. The Vision version of the forecasts represent these goals being realised. Rate of Fill of new runway In a constrained forecast where there is a gap between unconstrained demand and the capacity available, it is necessary to consider how quickly that capacity will actually fill. It is too simplistic to assume that if there is 20 million of unmet demand, overnight 20 million passengers will be added to the airport where that capacity is added. Both airlines and passengers take time to adjust to such a radical change. ICF SH&E has considered previous examples of new runways and new airport being opened to establish whether a clear pattern was visible. It was not, as may be seen in the timeline from the last 20 years below. Exhibit 5.11: Example Airports Passenger with Growth Capacity at Selected Additions, Airports 1991-2011 90 80 70 60 50 40 30 20 10 0 New runway/airport opened HKG new Airport (x1 additional runway) CDG R3/4 opened SAW: airport upgraded PEK R3 opened BKK new Airport (x2 runways remain) Bangkok Hong Kong Istanbul (Sabiha Gökçen) Paris (CDG) Beijing (PEK) Source: ACI A like-for-like comparison has proved impossible to find, particularly for a market which has been significantly constrained for a number of years. Nevertheless the above examples do provide a range of growth rates and profiles from which draw some parallels. Compared to the examples cited, the growth rates and volumes for Gatwick immediately following the opening of the second runway appear reasonable and achievable. 2013 44 ICF SH&E Page 51

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 5.12: Comparison of Growth following Capacity Addition (M) Passengers 100 50 Beijing (PEK) Traffic grew at >10% for 4 years following opening Average growth of 6.3m p.a 54 56 65 74 79 60 40 20 Paris (CDG) CAGR +11% over 3 years Avg growth of 4.3mppa on base of 35mppa 35 38 43 48 48 0 2007 2008 2009 2010 2011 0 1997 1998 1999 2000 2001 Istanbul (SAW) LGW Vision Grew from minimal base Average growth of 2mppa over 6 years whilst IST has grown at 3mppa in the same period CAGR +5% over 5 years averaging 2.4m ppa Growth of 21m is achieved over 10 years 15 10 5 0 11 7 3 4 4 1 2005 2006 2007 2008 2009 2010 80 60 40 20 0 45 51 52 54 56 58 2024 2025 2026 2027 2028 2029 Taken at the system level, Exhibit 5.13 illustrates that both the growth rate (2.1%) and the absolute growth (18m) is considerably less than at the other airports, consistent with the forecast expectation that the London market will be more mature than most by the mid-2020s. ffic in Year 1 of a new runway opening is similarly pragmatic, at 10% or just over 4m. This results in a 3% London level growth rate, during a period when the market is a whole is averaging around 2% growth. 2013 45 ICF SH&E Page 52

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Exhibit 5.13: Selected Selected City / Airport City/Airport Passenger Passenger Growth Growth (5 Years) (5yrs) 200 180 160 140 120 100 80 60 40 20 0 *4 years for HKG due SARS 27 33 38 48 54 82 18 51 164 182 LGW: Year 1 growth of 10%, or >4m (London total ~3%) Hong Kong* Paris (CDG) Beijing (PEK) Istanbul London Gatwick (IST&SAW) 45 57 CAGR Growth (5yr) (abs) 5.3% 4.5% 8.9% 16% 2.1% 4.6% 6m 10m 28m 32m >18m >11m Source: ICF SH&E Price Impact being equal, a rise in price elicits a fall in demand and vice-versa. The price stimulation impact of LCCs in the last decade is considered one example of this. Likewise the negative impact of APD shows the reaction of passengers to rising prices. Airport charges impact passenger behaviour via airline behaviour airlines can choose to absorb the cost or pass it on, or to alter their flying programme. Nevertheless, by impacting the price paid by users (airlines or passengers), higher airport charges are likely to reduce demand. to date, only preliminary estimates have been produced and detailed price impact modelling is part of subsequent work streams by ICF SH&E. These will consider in detail the demand segments and carrier types, the relative price today and in the future of operating at certain airports and the likely demand response from a rise in prices. Summary of Main Assumptions Unconstrained London forecast Demand readily outstrips supply in the London system across all market segments with demand forecast to reach nearly 250m within 40 years Capacity assumptions 2013 46 ICF SH&E Page 53

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 capacity. However capacity constraints apply across several airports by the 2030s. Additional Gatwick capacity is assumed to fill whilst de-peaking and maintaining resilience Attractiveness of Gatwick to London passengers and airlines Over time Gatwick will become attractive to all market segments which currently exhibit a preference to other airports in the London system Rate of fill of the new runway Despite pent-up demand, the new runway will not fill overnight, for practical and commercial reasons. Initially Gatwick is expected to take traffic from other airports and re-capture much of the previously un-met unconstrained demand over time. 2013 47 ICF SH&E Page 54

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Appendix A: Forecasts by Scenario 2013 48 ICF SH&E Page 55

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Figure 1: Base Comparison Scenario 1 - Original Passengers (M) 100 80 60 40 20 0 Long Haul Short Haul Domestic Runway 'Cap' LGW Passengers 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Passengers (M) 100 80 60 40 20 0 Scenario 1 - A greater mix of long haul is assumed in the vision 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Measure Today SC1 Original SC1 Vision Passengers (2050) n/a 48m 50m Years to fill n/a n/a n/a Long Haul (vol/mix) 6m / 18% 13m / 28% 17m / 34% ATMs (estimate) 240k ~290k ~300k Long haul traffic grows by nearly 200%, an increase of 11m For comparison LHR is around 36m today Share of LON Traffic 25% 24% 25% Figure 2: Scenario 2 Comparison (Close Spaced runway) Scenario 2 - Original Scenario 2 - Passengers (M) 100 80 60 Long Haul Short Haul Domestic Runway 'Cap' LGW Passengers Passengers (M) 100 80 60 Greater de-peaking is able to provide higher volumes whilst long haul is more readily captured 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Measure Today SC2 Original SC2 Vision Passengers (2050) n/a 60m 66m Years to fill n/a 8 7 Long Haul (vol/mix) 6m / 18% 17m / 28% 24m / 36% ATMs (estimate) 240k ~tbdk 391k Growth to 66m is possible with de-peaking Runway fills within 7 years of opening Share of LON Traffic 25% 29% 30% 2013 49 ICF SH&E Page 56

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Figure 3: Scenario 3 Comparison (Wide spaced runway in segregated mode) Scenario 3 - Original Scenario 3 - Vision Passengers (M) 100 80 60 Long Haul Short Haul Domestic Runway 'Cap' LGW Passengers Passengers (M) 100 80 60 Greater LH volumes driven by ability to serve all segments 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Measure Today SC3 Original SC3 Vision Passengers (2050) n/a 75m 82m Years to fill n/a 15 13 Long Haul (vol/mix) 6m / 18% 20m / 27% 30m / 36% ATMs (estimate) 240k ~450k 490k Share of LON Traffic 25% 35% 35% Higher ultimate ATM capacity is assumed under the vision Higher pax/atm is possible due to greater long haul volumes Figure 4: Scenario 4 Comparison (Wide spaced runway in mixed mode) Scenario 4 - Original Scenario 4 - Passengers (M) 100 80 60 Long Haul Short Haul Domestic Runway 'Cap' LGW Passengers Passengers (M) 100 80 60 Volumes comfortably pass that of Heathrow by 2050 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Measure Today SC4 Original SC4 Vision Passengers (2050) n/a 84m 87m Years to fill n/a 20 16 Long Haul (vol/mix) 6m / 18% 23m / 27% 30m / 35% ATMs (estimate) 240k ~tbdk Up to 540k* Growth towards 90m is forecast as traffic patterns de-peak Long haul volumes reach 30m by 2050 Share of LON Traffic 25% 37% 36% 2013 50 ICF SH&E Page 57

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Figure 5: Scenario 5 Comparison (Heathrow R3 opens in 2030, capped at 605k ATMs) Passengers (M) 100 80 60 Scenario 5 - Original Passengers (M) 100 Long Haul LGW Passengers Short Haul 80 Domestic Runway 'Cap' 60 Scenario 5-40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 40 20 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Measure Today SC5 Original SC5 Vision Passengers (2050) n/a 48m 50m Years to re-fill n/a 3 3 Long Haul (vol/mix) 6m / 18% 12m / 25% 11m / 23% ATMs (estimate) 240k ~tbdk 300k Share of LON Traffic 25% 22% 22% By 2030 significant pent up demand will help to back fill Gatwick when volumes are lost to Heathrow STN/LTN lose share to Gatwick 2013 51 ICF SH&E Page 58

Appendix B: Incremental Growth in Unconstrained Demand Page 59

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Figure 6: Incremental Growth by Market Segment, 2012-2040 London Passenger Demand 250 200 4.1 7.0 1.5 4.1 17.1 13.6 150 38.7 100 Transfer Demand 221 50 135 72m O&D Growth 0 Source: ICF SH&E 2013 53 ICF SH&E Page 60

The London Air Travel Market: Long Term Forecasts and Implications for Airport Capacity, 16 July 2013 Figure 7: Incremental Growth by Market Segment, 2025-2040 250 200 20.4 2.6 3.8 0.9 2.3 10.4 4.4 150 100 176 40m O&D Growth Transfer Demand 221 50 0 Source: ICF SH&E 2013 54 ICF SH&E Page 61

Appendix 3 Assessing Connectivity in UK's Air Transport Market Prepared by InterVISTAS Consulting Limited Page 63

Assessing Connectivity in Issues in the debate on London air transport capacity FINAL REPORT Prepared for Gatwick Airport Limited Prepared by InterVISTAS Consulting Ltd. 17 July 2013 Page 64

Assessing Connectivity i i Contents Executive Summary... iii 1 Introduction: The Airports Commission Issue of Connectivity... 1 2 The London Aviation Market... 4 2.1 The London Airports... 4 2.2 The Combined London Aviation Market and Comparators... 6 2.3 The Near-London Catchment Area... 8 2.4 What Does it Say about... 10 2.5 Number of Non-stop Destinations: Is there a Domestic UK Connectivity Gap for the London Airports?... 12 2.6 Sources of Connections at Heathrow: The Vast Majority are Within-Alliance... 15 2.7 Key Conclusions on the London Air Market... 17 3 Comparison of London to Other Markets with Multiple Airports... 18 3.1 There are Many Cases of Major Cities With Multiple Gateway or Hub Airports... 18 3.2 Airlines Find it Effective to Have Multiple Hub Operations, Even When These Airports are Close to Each Other... 24 3.3 Proximate Gateway Airports Can Coexist... 25 3.4 Case Study: The Emergence of Multiple Gateway Airports at Moscow... 26 3.5 Key Conclusions on Multiple Airport Cities... 29 4 Connectivity: Why it Matters and How it Should be Measured... 30 4.1 Connectivity is not the Same as Connecting Traffic.... 30 4.2 Connectivity and the Economy... 31 4.3 Defining and Measuring Connectivity... 35 4.4 Connectivity and Affordability... 39 4.5 Key Conclusions on Connectivity and Why it Matters... 39 5 Limits to the Returns from Increased Connectivity at a Single Airport... 41 5.1 Introduction: The Benefits of Flight Connectivity at a Single Airport are not Limitless... 41 5.2 The S-Curve Effect: Diminishing Returns to Flight Frequency... 42 5.3 Diminishing Returns to Destinations in a Region... 43 5.4 Supply Side Limits to Connectivity: Why Mega-Hubs in West London or the Thames Estuary are not the Answer... 44 5.5 Key Conclusions on Diminishing Returns to the Value of Connectivity at a Single Airport... 45 6 Ensuring Robustness in the Face of Dynamic Market Conditions... 47 6.1 Airline Business Models are Evolving... 47 6.2 Evolution of the LCC Model... 48 6.3 Changing Alliances... 51 6.4 Conclusions... 53 17 July 2013 Page 65

Assessing Connectivity i ii 7 A Demonstration of National Incremental Connectivity Benefits of Dual Gateway Airports: The Fallacy of One Hub or None... 54 7.1 Introduction... 54 7.2 Traffic Impacts of Alternative Capacity Options at Heathrow and Gatwick... 55 7.3 Implications for Connectivity... 58 7.4 Conclusions... 59 8 The Importance of Competition and the Price of Air Access in Connectivity... 61 8.1 Introduction... 61 8.2 The Dramatic Impact of Competition... 61 8.3 Airport Competition... 64 8.4 Empirical Evidence on Airport Competition Dynamics... 65 8.5 Airport Competition in the London Market... 68 8.6 The Airline Competition Link to Airport Competition... 70 8.7 Enhancing Competition in the London Market: The Case of Moscow... 71 8.8 Conclusions Regarding Competition... 72 9 Overall Conclusions and Next Steps... 73 9.1 Next Steps... 76... 77 Appendix B: List of Abbreviations... 84 Appendix C: List of Airport Codes... 85 17 July 2013 Page 66

Assessing Connectivity i iii Executive Summary Airports Commission. The Airports Commission the need for additional UK airport capacity. One of the key issues identified by the Commission is that of connectivity. In regards to connectivity, t questions: How should connectivity be defined? How does the aviation connectivity of the UK contributes to the economy of the country? What are the drivers of connectivity? How well connected is the UK to the world and how does it perform in comparison to other European countries? This study. InterVISTAS Consulting Ltd. was commissioned by Gatwick Airport Limited (GAL) to undertake a study of the issues around air connectivity and their implications for choices to be made by the Commission for the development of airport capacity in the London market. This report provides our findings on the issues. Key results of this study are summarised below. The London air market. London is the largest international air market in the world, as measured by the total number of passengers or the number of international passengers. The combined passenger traffic at the five main London airports significantly exceeds that of any other city in the world (the next largest is New York, followed by Atlanta, Tokyo, Paris and Beijing). The combined total of the top three airports (Heathrow, Gatwick and Stansted) is still larger than New York. The vast majority of traffic (approximately 87%) is origin-destination traffic. London is the largest air market in the world with a small proportion of connecting traffic. Defining and measuring connectivity. Air transport connectivity is important for the UK economy. We emphasise that connectivity and connections mean different things. the supply side issues of flowing traffic in a network, including non-uk traffic. It is our view that there is no one single measure of connectivity and, rather, a number of alternatives should be considered. Connectivity measures should incorporate both supply-side (i.e., airline traffic and profit analysis of connections) and demand-side factors (linkages to world population, economic activity and trade and price of air services). When evaluating connectivity, analysis should not be confined only to air transport connections. Ground transport to London airports are also a means of connectivity. Southampton, for example, is not connected to any London airports by airline services, although it is connected by road and rail links, but is connected by air service to Amsterdam and Paris. This is not unlike the case of Rotterdam being connected to Heathrow (LHR) and London City (LCY) but not (by air) to Amsterdam. Similar examples exist for Paris CDG airport. The lack of air links to short haul domestic destinations well served by road and rail does not necessarily imply a connectivity gap to these communities for London airports. 17 July 2013 Page 67

Assessing Connectivity i iv 17 July 2013 Connectivity depends not merely on the number of cities and routes. The price of air services is of critical importance. Assessing connectivity should not be a matter of only counting routes and flight frequencies. The effectiveness of aviation access depends on the price of air service. Competition between airports and airlines is critical to achieving effective connectivity. Connectivity at high fares is of lower national value than Runway capacity decisions that merely strengthen a dominant carrier and its alliances, and a dominant airport, are not necessarily the best choice for achieving the maximum benefits from aviation connectivity. connectivity at competitive fares enabled by competition between airlines and airports. It is important that any additional airport infrastructure in London enhances rather than undermines the competitive dynamics of the UK aviation market. Competition will ensure route development best meets the needs of the market and fosters competitive pricing due to airport and airline competition. This can only be achieved by allowing other airports to compete on a level Runway capacity decisions that merely strengthen a dominant carrier and its alliances, and a dominant airport, are not necessarily the best choice for achieving the maximum benefits from aviation connectivity. Diminishing returns to connectivity at any single airport. While global connectivity is very important to the nation, there are diminishing returns to the connectivity benefits that can be achieved from any single airport. This is due to demand-side factors such as the S-curve effect of additional flight frequency and to the diminishing marginal connectivity impact of adding new routes to a particular region. It is also due to supply-side factors around the logistics of operating a single airport. As airports expand, taxi times increase and airline operating costs Intercontinental gateways such as Dubai can achieve very high passenger volumes for a given runway configuration by focussing largely on ultra-high capacity aircraft. But such aircraft are not suitable for short to medium haul markets. An airport whose mission includes both intercontinental and regional access will be more limited in the passenger volumes that can be achieved within a given runway configuration. industry. The airport capacity based on the current status quo risks limiting Lo development and the benefits to consumers. In this report, a number of emerging industry trends have been identified such as long haul Low Cost Carriers (LCCs), partnerships between LCCs and network carriers, and the constant evolution of airline alliances. All of these trends could substantially change the aviation industry structure and future infrastructure requirements. Furthermore, there may be other unanticipated trends and other events that will also impact on the aviation industry. Competition between airports and airlines is critical to achieving effective connectivity. future airport capacity based on the current status quo risks limiting development and the benefits to consumers. The important consideration is that the chosen airport infrastructure solution is one that is robust and flexible to future changes in the industry and in aviation demand. This robustness comes about not just from increased capacity but also by fostering competition. These competition dynamics will lead to competitive pricing, will spur innovation and will ensure that Page 68

Assessing Connectivity i v consumers and ultimately the wider society. Other major cities support multiple, competing gateway airports so can London. 1 Some have argued that it is not possible to have two or more competing gateway airports in a given region. We disagree. First, we document that several other large global markets such as New York and Tokyo that support competing global gateway or hub airports. Second, using airline route and network analysis tools, the report demonstrates that it is possible to achieve similar connectivity benefits with a two gateway airport system in a market the size of London than with traffic concentrated at a single airport. Furthermore, an additional runway at Gatwick also has the substantial benefit of enhancing the competition dynamics of the London market. It is possible to achieve connectivity benefits with a two gateway system with the substantial benefit of enhancing airport competition. 1 In this report, we use the term gateway airport to refer to large airports (over 20 million passengers per annum) with considerable international connectivity, which serve predominately origin-destination (O/D) traffic, although with some connecting traffic. This is different to a hub airport where connecting traffic is a far greater share of passenger traffic. For example, Atlanta and Dubai are hub airports whereas Heathrow and Gatwick are gateway airports. 17 July 2013 Page 69

Assessing Connectivity i 1 1 Introduction: The Airports Commission Issue of Connectivity The Airports Commission is examining the need for additional UK airport capacity and will be developing recommendations to government as to how this can be met in the short, medium and long term. One of the key issues identified by the Commission is that of connectivity. In regards to connectivity, t questions: How should connectivity be defined? How does the aviation connectivity of the UK contributes to the economy of the country? What are the drivers of connectivity? How well connected is the UK to the world and how does it perform in comparison to other European countries? InterVISTAS Consulting Ltd. was commissioned by Gatwick Airport Limited (GAL) to undertake a study of the issues around air connectivity and their implications for choices to be made by the Commission for the development of airport capacity in the London market. This report provides our findings on the issues. Our report is also accompanied by a separate report modelling alternative scenarios for capacity development at Heathrow and Gatwick (London Airport Capacity QSI Scenario Analysis). Key results of this study are summarised here. The report covers the following topics: Chapter 2 provides an overview of the London commercial air transport market. It demonstrates that London is the largest international air market in the world, as measured by the number of passengers, most of it origin/destination (O/D) traffic, and one of the top airports in the world as measured by the number of destinations connected. This chapter connection to BRIC countries may be overstated. Analysis is also provided which shows that much of the connecting activity at Heathrow is within-alliance, and that rather than being a big neutral connecting gateway, Heathrow is a dominated hub that largely facilitates connections Chapter 2 also examines domestic connectivity and need to consider ground transport to London airports as part of this connectivity. Southampton, for example, is not connected to any London airports by airline services, although it is connected by road and rail links, but is connected by air service to Amsterdam and Paris. This is not unlike the case of Rotterdam being connected to Heathrow (LHR) and London City (LCY) but not to Amsterdam (by air). Similarly, Dinard, France is connected by air to London but not to Paris. The lack of air links to short haul domestic destinations well served by road and rail does not necessarily imply a connectivity gap to these communities for London airports. Chapter 3 examines other cities with multiple gateway airport systems, such as New York, Tokyo and Moscow. These examples illustrate why a similar situation could develop in London and also shows the dynamics process by which multiplier airports can develop. 17 July 2013 Page 70

Assessing Connectivity i 2 Chapter 4 discusses why air connectivity is important for the UK economy and different ways to measure it. We emphasise that connectivity and connections mean different the airlines supply side issues of flowing traffic in a network, including non-uk traffic. It is our view that there is no one single measure of connectivity and, rather, that a number of alternatives should be considered. Connectivity measures should incorporate both supplyside (i.e., airline traffic and profit analysis of connections) and demand-side factors (linkages to world population, economic activity and trade). Finally, the chapter points out that assessing connectivity should not be a matter of only counting routes and flight frequencies. Effectiveness of aviation access depends on the price of air service. Competition between airports and airlines is critical to achieving effective connectivity. Chapter 5 argues that while global connectivity is very important to the nation, there are diminishing returns to the connectivity benefits that can be achieved from any single airport. This is due to demand-side factors such as the S-curve effect of additional flight frequency and to the diminishing marginal connectivity impact of adding new routes to a particular region. It is also due to supply-side factors around the logistics of operating a single airport. As airports expand, taxi times increase and airline operating costs and capital productivity decline. its practical capacity. Intercontinental gateways such as Dubai can achieve very high passenger volumes for a given runway configuration by focussing largely on ultra-high capacity aircraft. But such aircraft are not suitable for short to medium haul markets. An airport whose mission includes both intercontinental and regional access will be more limited in the passenger volumes that can be achieved within a given runway configuration. Chapter 6 discusses emerging trends in the aviation industry which have implications for the development of airport capacity. These include the development of low cost long-haul, connections between low cost carriers and network carriers and the constant flux in airline alliances and partnerships. The key message from this chapter is the aviation industry is constantly changing and evolving. current status quo and the benefits to consumers. Consideration has to be given to airport capacity solutions that are robust and flexible to future changes in the industry and aviation demand. Chapter 7 provides an analytical basis for the arguments in Chapters 5 and 6. Some have argued that it is not possible to have two or more competing airline hub operations in a given region. We demonstrate that it is possible to achieve similar connectivity benefits with a two gateway airport system in a market the size of London than with capacity largely concentrated at a single airport. Our discussion uses the results from a network modelling exercise documented in a separate report (London Airport Capacity QSI Scenario Analysis). Chapter 8 returns to the issue of the price of air services as a critical factor in connectivity. It discusses the importance of ensuring that any additional airport infrastructure in London enhances rather than undermines the competitive dynamics of the UK aviation market. Competition will ensure route development best meets the needs of the market and fosters competitive pricing due to airport and airline competition. This can only be achieved by Heathrow. Runway capacity decisions that merely strengthen a dominant carrier and its alliance, and a dominant airport, are not necessarily the best choice for achieving the maximum benefits from aviation connectivity. 17 July 2013 Page 71

Assessing Connectivity i 3 Chapter 9 concludes the evidence in this report. It strongly supports the case for runway capacity expansion at Gatwick, ensuring that the UK has effective and affordable connectivity. Finally, the report includes an appendix which addresses some of the issues raised in a report titled One Hub or None: the case for a single UK hub airport released by Heathrow Airport in November 2012. Many of the issues are discussed in our main report. The appendix pulls together a concise point-by-point response. 17 July 2013 Page 72

Assessing Connectivity i 4 2 The London Aviation Market 2.1 The London Airports London is the largest aviation market in the world based on the number of passengers. International and domestic passengers travelling to, from or via London use a system of airports consisting of six main airports that offer scheduled passenger service. The six airports in the London area include Heathrow (LHR), Gatwick (LGW), Stansted (STN), Luton (LTN), London City (LCY) and Southend (SEN). On a combined basis, the six airports handle roughly 135 million passengers per year. All six airports offer domestic and international passenger service. Figure 2-1 provides data on passengers and aircraft movements for the main London airports. Figure 2-1 Summary statistics for the London airports 2012 Airport Annual number of passengers (millions) 2 Annual number of aircraft movements 3 Number of passengers per aircraft movement Number of runways Heathrow 70.0 471,791 148 2 (independent) Gatwick 34.2 240,494 142 1 Stansted 17.5 132,920 132 1 Luton 9.6 75,783 127 1 London City 3.0 69,902 43 1 Southend 0.6 8,086 74 1 Total 134.9 998,976 135 7 4 Source: UK Civil Aviation Authority data;; InterVISTAS analysis. 2 Totals include scheduled and charter terminal passengers. Source: UK Civil Aviation Authority, Statistics: 2012-3 Statistics: 2012 - Table 3.1 Aircraft Movements 2012 4 Luton, London City and Southend have relatively short runways. 17 July 2013 Page 73

Assessing Connectivity i 5 2.1.1 Heathrow Heathrow ranked 3 rd among world airports (behind Atlanta and Beijing) based on the total number of annual enplaned/deplaned passengers in 2011. In terms of international passengers, it is the busiest in the world, handling more international passengers than any other airport. Heathrow is the largest airport in the London area with roughly 70 million annual passengers or 52% of total air passenger traffic in London based on 2012. It is the only airport in the London area which has two full-length runways. Heathrow is an international hub serving 150 non-stop destinations worldwide. 5 Approximately a quarter (27%) of passengers at Heathrow are transferring between flights at the airport, which means that the vast majority of travellers are origin-destination passengers. Heathrow currently operates at 98% capacity, as the annual capacity of the airport is limited to 480,000 flights. Currently, Heathrow has two independent full-length runways. The airport is connected to central London via a rail link, which means passengers can get from Paddington Station to Heathrow in about 15 minutes. The airport is directly connected to the M4, with a nearby interchange to the M25. Its location in close proximity to the centre of a large metropolitan city also means that the airport has a high noise impact on surrounding communities. An expansion of the airport would increase noise exposure for the communities that currently fall within its noise foot print and may potentially expose new communities that were previously unaffected by airport operations to noise disturbance. Residents of North-West London and North London would likely be among the new communities that could experience increased noise levels, if a third runway is built at Heathrow. Residents of West London are currently exposed to noise from the airport;; however, an expansion of Heathrow would dramatically increase the level of noise exposure for those communities. 2.1.2 Gatwick Gatwick ranks 37 th among world airports based on the number of passengers transported annually. Gatwick is the second largest airport in the London area, offering both domestic and international service and accounting for 25 December 2009, Gatwick was sold by the British Airports Authority (BAA) to Global Infrastructure Partners as a result of a divestiture order by the UK Competition Commission which compelled BAA to sell three of its seven airports (Gatwick, Edinburgh and Stansted) in order to enhance competition between airports. Gatwick primarily offers point-to-point service (about 8% of passenger traffic at Gatwick are transfers). Unlike Heathrow, Gatwick also serves low cost carriers (LCCs) and is a major base for esecond largest LCC. Survey data collected by BAA and the UK Civil Aviation Authority indicates that Gatwick is the most popular airport substitute for Heathrow, followed by Stansted and Luton. Gatwick has scheduled intercontinental service to the United States, China, Russia, the Caribbean, Dubai, Indonesia, Iraq, Turkey and Vietnam. 5 Official Airline Guide (OAG) data for 2012. 17 July 2013 Page 74

Assessing Connectivity i 6 Unlike Heathrow whose flight path crosses highly populated central London, Gatwick is located in a less densely populated area, 47.5 km south of Central London. The airport has a much lower noise impact on surrounding communities and its expansion would only marginally increase such impact. Gatwick is connected by rail to Central London, with 30-minute journey times. Gatwick is directly served by the M23 with nearby interchange with the M25. 2.1.3 Stansted traffic or about 18 million passengers annually. In January 2013, Stansted was sold by Heathrow Airport Holdings (formerly BAA) to Manchester Airports Group as part of the UK in 2009. Stansted's is a base for the largest European low cost carrier, Ryanair. Currently, the airport does not have scheduled air service outside of Europe. Stansted has rail service to Central London, with journey times of 45-60 minutes. It is located close to the M11. 2.1.4 Luton Luton is the fourth largest airport in the London area with a 7% share of London's total passenger traffic. Luton offers both domestic and international passenger service, primarily focusing on short- and medium-haul service. The airport is used as a base by low-cost carriers Ryanair and easyjet. 2.1.5 London City and Southend London City and Southend collectively account for 3% of London's total passenger traffic. The two airports offer regional scheduled passenger service, primarily to destinations in continental Europe. British Airways also operates an all-business Airbus 318 service from London City to New York. London City is served by the Docklands Light Rail line. Southend is a base for easyjet which offers service to destinations in Europe. 2.2 The Combined London Aviation Market and Comparators Based on passenger volumes, London is the largest aviation market in the word. According to Airports Council International (ACI), in 2011 London handled roughly 133 million passengers, comprising about 2.5% of global passenger traffic. The next largest city airport markets are New York (106 million passengers), Tokyo (91 million), Paris (88 million) and Beijing (81 million). Ninth ranked Dallas, with two airports, two hubs and two large hub carriers, has less than half the passenger traffic of London. London is one of only two cities in the world which handle more than 100 million passengers. New York is the other, with 78% of the total traffic of London. (Heathrow, Gatwick and Stansted) handled more traffic that than the New York airports (122 million). 17 July 2013 Page 75

Assessing Connectivity i 7 London large size is even more impressive considering that only 13% of this traffic is connecting traffic. 6 87%) is origin-destination traffic. Figure 2-2 depicts total traffic for major multi-airport markets and select single-airport markets. Figure 2-2 Total Passenger Traffic for Select Multi-airport and Single-airport Cities 2011 7 140 120 52% LHR Multi-Airport Markets Single-Airport Markets 100 25% LGW 45% JFK Passengers (millions) 80 60 40 20 0 14% STN 7% LTN 2% LCY 32% EWR 23% LGA 69% HND 31% NRT 69% CDG 31% ORY 97% PEK 3% NAY 82% LAX 1% SNA 6% ONT 56% PVG 44% SHA 88% DFW 12% DAL 70% SFO 16% OAK 14% SJC 66% ICN 34% GMP 80% IAH 20% HOU 51% KIX 49% ITM London New York Tokyo Paris Beijing Los Angeles Shanghai Dallas San Francisco Seoul Houston Osaka Atlanta Jakarta Dubai Amsterdam Madrid Source: ACI, 2011 World Airport Traffic Report. 6 Source: PaxIS data. 7 Note that the data in Figure 2-2 is for 2011, while the data in Figure 2-1 is for 2012. 17 July 2013 Page 76

Assessing Connectivity i 8 2.3 The Near- London Catchment Area The UK has a compact territory, which in turn means that a large proportion of its population lives within driving or rail transportation range from the airports located in the London area. Figure 2-3 shows the population in various driving ranges from the London airports. Figure 2-3 Driving Range and UK Population Access to LHR and LGW 2004 Driving Range LHR (% of UK pop.) 2 hours 25 million (42%) 3 hours 36 million (60%) 4 hours 50 million (84%) LGW (% of UK pop.) 20 million (33%) 32 million (54%) 47 million (79%) Source: Microsoft MapPoint, based on 2004 population data. Gatwick and Heathrow have similar catchment areas based on different driving ranges. Approximately 36 million people, or 60% of the UK population, live within a three-hour driving range from Heathrow, and only a slightly smaller amount (32 million) is within three-hours driving time of Gatwick. Stansted, Luton and London City have similar catchment areas for Heathrow and Gatwick. Even though Gatwick driving time catchment area is similar to that of Heathrow. Figure 2-4 illustrates different catchment areas for five London airports (Heathrow, Gatwick, Stansted, Luton and London City). The black line delineates a two-hour driving range, the bright blue line marks a three-hour driving range and the light blue line indicates a four-hour driving range from a given airport. As can be seen, the London airports provide good connectivity/access to a wide range of markets in the UK via highway (bus and car) and rail connections. In fact, when determining connectivity of a given airport one must be careful not to restrict the assessment of connectivity only to air routes. We return to this topic in Section 3. 17 July 2013 Page 77

Assessing Connectivity i 9 Figure 2-4 Geographic Catchment Areas for Select Airports in the London Area (2-hour, 3-hour and 4-hour driving range) 2004 Heathrow Gatwick Stansted Luton London City Source: Microsoft MapPoint, based on 2004 population data. 17 July 2013 Page 78

Assessing Connectivity i 10 2.4 British Airways : What Does it SConnectivity Gap? In April 2012, International Airlines Group (IAG), the parent company of British Airways, purchased BMI from Lufthansa for 172.5 million (the sale did not include bmibaby or BMI Heathrow. At the time of purchase, BMI had 56 slots at Heathrow, the second largest holding after British Airways. The transaction netted British Airways 42 additional slots at Heathrow, as the carrier was required to release 14 slots to satisfy the competition authorities, with most of the slots going to Virgin. British Airways now holds nearly 51% of the slots at Heathrow, up from 44% prior to the transaction. 8 Figure 2-5 summarises how British Airways deployed the additional slot capacity it acquired from the purchase of BMI by comparing frequencies operated in January 2012 with those operated in January 2013 (before and after the purchase). The total frequencies operated by British Airways at Heathrow increased by 14% between January 2012 and January 2013. Some of this additional capacity was deployed on new routes for British Airways a total of 19 routes were started including Dublin, Belfast, Leeds Bradford, Bologna, Hanover and Rotterdam. However, 12 of these routes, while new to British Airways, were previously served by BMI. In addition, British Airways increased frequencies on a number of existing routes, including Edinburgh, Aberdeen, Berlin, Manchester and Geneva. At the same time, five routes previously operated by BMI have now been dropped: Casablanca, Yerevan (Armenia), Tehran, Ostersund (Sweden) and Marrakesh. What is particularly notable is how almost none of the additional slot capacity has gone into long haul capacity to Asia and other high economic growth parts of the world. The only long haul service introduced is to Seoul, operated six times per week. Instead, British Airways has chosen to increase capacity in the domestic market and to Europe. This seems to contradict statements by Heathrow and others that the UK and London is facing a profound shortage of service to BRIC and other developing countries. Almost none of the additional slot capacity has gone into long haul capacity to Asia and other high economic growth parts of the world. The route choices are also affected by the available of suitable aircraft. However, if these emerging markets were real opportunities, British Airways could have reallocated aircraft. Fleets are not dichotomised for example, a Boeing 767 can be used for medium or long haul. The fleet can be shifted around to free up capacity - a BMI A321 could service a route previously served by a British Airways B767 which in turn is redeployed to a medium/long haul opportunity. There are also opportunities to lease aircraft for transition periods. Manufacturers also have programs to swap aircraft later. Buy an A330 today and we will give you credit on an A350 in 2020. While there are limits to this and British Airways may eventually re-fleet, 9 the fact that only one new long haul route was added suggests that there may not be good economics for these routes, at least at present. Route economics, not slots, seems to be the driving factor. 8 Further details on slot holdings at Heathrow can be found in Section 8.6. 9 British Airways to due to take delivery of new B787 and A380 aircraft in 2013. 17 July 2013 Page 79

Assessing Connectivity i 11 It appears that there is currently greater profitability in operating shorter haul routes to parts of the UK and Europe. Figure 2-5: New Services and Capacity Increases by British Airways at Heathrow January 2012 vs January 2013 Destination New BA Route Share of Increased Frequencies* Previously operated by BMI Dublin Yes 17% Yes Belfast City Yes 16% Yes Leeds Bradford Yes 10% Bologna Yes 7% Hanover Yes 7% Yes Rotterdam Yes 7% Marseille Provence Yes 6% Bergen Yes 5% Yes Edinburgh 5% Yes Stavanger Yes 5% Yes Aberdeen 5% Yes Berlin 4% Yes Manchester 3% Yes Amman (Jordon) Yes 2% Yes Beirut Yes 2% Yes Baku (Azerbaijan) Yes 2% Yes Zagreb Yes 2% Seoul Incheon (South Korea) Yes 2% Geneva 2% Yes Tbilisi (Georgia) Yes 1% Yes Other route frequency increases Yes 22% Route frequency declines Yes -33% Total 100% Source: Diio Mi Schedules Data. * The sum total of the individual route increases comes to 133% of the total frequency increase, as some of the increases were accommodated by cut backs on other routes. Subtracting the frequency declines on other routes brings the total to 100%. 17 July 2013 Page 80

Assessing Connectivity i 12 Thus, the picture of connectivity is more complex than some have made out. While undoubtedly, over time, there will be strongly growing demand for service to Asia, South America and elsewhere, there is also a need to accommodate demand for travel to many other parts of the world. Developing airport capacity at the London airports is not simply a matter of enabling a handful of routes to BRIC countries but rather allowing a complex set of connectivity needs to be met. This requires not just capacity but also effective competition conditions ensuring that airlines and airports are fully and cost-effectively responsive to market demand. Developing airport capacity at the London airports is not simply a matter of enabling a handful of routes to BRIC countries but rather allowing a complex set of connectivity needs to be met. 2.5 Number of Non- stop Destinations: Is there a Domestic UK Connectivity Gap for the London Airports? Figure 2-5 provides a summary of non-stop destinations served by the airports of a number of select international airports. Based on the number of non-stop destinations served, Frankfurt ranks number one with 292 destinations, followed by Amsterdam with 261 destinations and Paris with 249 destinations. Gatwick ranks fourth with 213 destinations ahead of Heathrow with 174 destinations. 10 Figure 2-5 Number of Non-stop Destinations Served by Select Major Airports 2012 Origin City Name Airport Origin Country Continent Source: Diio Mi Schedules Data. Domestic Number of Non-Stop Destinations in 2012 Other Intercontinental Grand Total International FRA Frankfurt Germany Europe 16 141 135 292 AMS Amsterdam Netherlands Europe 0 153 108 261 CDG Paris Frace Europe 17 100 132 249 LGW London Gatwick United Kingdom Europe 12 141 60 213 PEK Beijing China Asia 114 48 48 210 DXB Dubai UAE Middle East 1 44 149 194 JFK New York United States North America 71 8 100 179 LHR London Heathrow United Kingdom Europe 8 68 98 174 EWR New York/Newark United States North America 87 16 65 168 LAX Los Angeles United States North America 99 24 39 162 PVG Shanghai (Pudong) China Asia 80 50 31 161 ICN Incheon South Korea Asia 3 101 42 146 MIA Miami United States North America 54 6 77 137 NRT Narita Japan Asia 13 41 50 104 SHA Shanghai (Hongqiao) China Asia 72 5 0 77 10 Gatwick serves more routes than any other UK airport. The route numbers for all airports includes all scheduled and charter air services operated with 10 or more outbound frequencies in 2012. 17 July 2013 Page 81

Assessing Connectivity i 13 Figure 2-5 also shows the domestic routes operated from each airport. As can be seen, Heathrow operates fewer domestic routes than Gatwick and fewer than Frankfurt and Paris. This has led to concerns that domestic connectivity is being squeezed out due to lack of capacity in London. There may be an element of truth to this. Short-haul domestic routes operated by smaller aircraft are likely to be less profitable than long haul routes operated by wide body aircraft. However, it is interesting to note that both British Airways and Virgin have chosen to expand appears that rather long haul capacity squeezing out domestic capacity, domestic traffic is being increasingly accommodated within the existing slot constraints at Heathrow. When considering domestic connectivity, the approach of merely counting the number of nonstop routes, however, disregards the role of ground transport access to London airport connectivity. Road and rail connections provide connectivity and for many travellers this may potentially be better connectivity to the world (via a non-stop flight from a London airport in a low cost seat) than a connecting service via AMS or CDG in a small aircraft, with a long connection and at a higher price. A resident of Southampton, UK, travelling to Beijing, China, may find it more attractive to drive to a London airport and catch a direct flight from, for example, Gatwick to Beijing rather than flying from Southampton to CDG or AMS in a small aircraft then making a connection to Beijing. Under the first option (drive to a London airport), it would take the traveller approximately 2 hours to reach Gatwick by car or train and 1 hour of waiting time at the airport (Gatwick) before the traveller can catch a direct flight to Beijing. Under the second option (fly to and connect at AMS or CDG), the traveller would spend 30 minutes driving to the airport in Southampton, 1 hour at that airport, another 1 hour to reach CDG or AMS by air, and an additional 1 hour 30 minutes of connection time before the traveller can embark on a direct flight to Beijing. Thus, other things being equal, ground access to a London airport can be as good or even a better alternative to a connecting flight via Paris or Amsterdam (3 hours versus 3.5 hours before the traveller can catch a direct flight to China). The important point being made is that the lack of a non-stop flight from Southampton to a London airport does not necessarily mean that there is a connectivity gap for the London airports. Quality of Service Index (QSI) is widely used in the airline industry for assessing the relative quality of different service options. For example, a connecting flight will show a lower QSI value compared to a non-stop flight. The QSI values are based on analysis of historical data. The QSI methodology provides a framework for quantifying and comparing qualitative aspects of air travel such as the quality or convenience of service. 11 In doing so, QSI aims to quantify consumer behaviour by quantifying and ranking the relative attractiveness of different service options. Figure 2-6 below provides an example of the QSI scores for two travel options from Southampton, UK, to Beijing, China: (1) a direct flight from Gatwick to Beijing, assuming the passenger would use ground transportation to access Gatwick, and (2) a connecting flight from Southampton to Beijing via Amsterdam. 11 The QSI methodology is discussed in more detail in the InterVISTAS report London Airport Capacity QSI Scenario Analysis. 17 July 2013 Page 82

Assessing Connectivity i 14 Figure 2-6 QSI Scores for Southampton, UK Beijing, China UK Airport Destination Airline Via Aircraft Flights Per Month QSI Score Gatwick (LGW) Beijing (PEK) Air China Non-stop Airbus 330 17 25.4 Southamptton (SOU) Beijing (PEK) Flybe connecting to KLM (code-share) AMS Q400/Embraer E- 195 Connecting to Boeing 747 26 1.0 Source: InterVISTAS Analysis. The first option generated a QSI of 25.4 while the second option generated a QSI of 1, flight from Gatwick to Beijing is considerably more attractive than a connecting flight via Amsterdam. Of course, this simple QSI analysis does not account for the cost or inconvenience associated with driving to Gatwick from Southampton. Factoring in the driving time and the incremental cost of fuel and parking in the London area would lower the QSI score somewhat for the Gatwick-Beijing direct flight. But because the deleterious effect of additional commute is offset by the time the traveller saves on transferring from one flight to another at the connecting airport, the LGW flight will still have the advantage. The issue of a lack of non- Both Amsterdam and Paris CDG experience the same phenomena. Consider the case of the city of Rotterdam. Rotterdam is connected by air service to Heathrow and London City in London, but not to Amsterdam airport. This, however, does not mean that Amsterdam has a connectivity gap for Rotterdam. The two cities in the Netherlands are one-hour drive apart, meaning that a passenger originating a trip in Rotterdam can easily reach Amsterdam by road (car or bus) or by rail. Similarly, Tours, Beauvais and Dinard in France are examples of airports connected to London Stansted but not to any Paris airport. It is difficult to argue though that Paris has a connectivity gap for these three destinations, all of which are located within four hours of driving from Paris. A key observation here is that one must be careful in assessing the connectivity of the London airports based only on air route connectivity. Instead, an assessment of connectivity based on the number of direct air routes should When evaluating connectivity, analysis should not be confined only to air transport connections. Ground transport to London airports are also a means of connectivity. be complemented with a qualitative assessment. Such qualitative assessment would take into account important factors such as ground accessibility of a given airport by passengers from various catchment areas. Just because communities such as Southampton, Bristol and Birmingham are connected by air service to Amsterdam and Paris does not mean that they are not connected to the London airports or that the London airports have a connectivity gap with these markets. 17 July 2013 Page 83

Assessing Connectivity i 15 2.6 Sources of Connections at Heathrow: The Vast Majority are Within- Alliance Heathrow is dominated by one major carrier and its alliance partners. Figure 2-7 breaks down the types of passenger connections at Heathrow. The data shows that: there were 19 million passengers making connections at Heathrow in 2012;; 73% of these are connections between oneworld carriers. This data is somewhat distorted, however, due to the acquisition of BMI by British Airways during 2012. To minimise this distortion, Figure 2-8 removes the 0.8 million connections to/from BMI. This results in the oneworld connection ratio to climb to 76%. An additional 6% of connections are within either the Star Alliance or the Skyteam alliance. Thus, the vast majority of connections at Heathrow (82%) are within-alliance and most of those are for the oneworld alliance. Heathrow is not a big neutral connecting gateway. It is a dominated hub that largely facilitates connections within 76% of connections at Heathrow are within oneworld. 82% of connections are within-alliance. 17 July 2013 Page 84

Assessing Connectivity i 16 Figure 2-7 Sources of Connecting Traffic at Heathrow 2012 Connecting Airline Pair Passengers % Oneworld - oneworld 13,934,492 73% Non-aligned network - non-aligned network 1,140,276 6% Non-aligned network - oneworld 1,045,808 5% Star - Star 1,018,224 5% Oneworld - Star 801,494 4% Non-aligned network - Star 753,738 4% Oneworld - SkyTeam 99,056 1% SkyTeam - SkyTeam 92,784 0% Non-aligned network - SkyTeam 79,550 0% SkyTeam Star 71,586 0% Other 4,202 0% Grand Total of LHR Connecting Traffic 19,041,210 100% Source: DIIO FMg Database. Figure 2-8 Sources of Connecting Traffic at Heathrow 2012 (BMI removed from data) Connecting Airline Pair Passengers % Oneworld - oneworld 13,934,492 76% Non-aligned network - non-aligned network 1,018,224 6% Non-aligned network - oneworld 893,984 5% Star - Star 801,494 4% Oneworld - Star 776,982 4% Non-aligned network - Star 463,450 3% Oneworld - SkyTeam 99,056 1% SkyTeam - SkyTeam 92,784 1% Non-aligned network - SkyTeam 71,586 0% SkyTeam Star 66,420 0% Other 4,198 0% Grand Total of LHR Connecting Traffic 18,222,670 100% BMI (removed if either segment to/from LHR is BMI) Source: DIIO FMg Database. 818,540 4% 17 July 2013 Page 85

Assessing Connectivity i 17 2.7 Key Conclusions on the London Air Market Several key conclusions about the London aviation market can be made: London is the largest aviation market in the world based on the total number of passengers. London is also the largest international aviation market in the world based on the number of international passengers. Although Heathrow handles double the passenger traffic of Gatwick, the latter serves more destinations than Heathrow (213 vs 174). The driving time catchment area sizes of the London airports are similar. British Airways s indicates that the need for service to BRIC countries is mis-stated and that the need for air traffic development is far more complex. The London airports provide global connectivity and air access to a large portion of the UK population via road and rail. Even though there are no non-stop flights from London airports to near-london communities such as Southampton, Birmingham, etc., that does not mean that there is a connectivity gap for the London airports. Roughly 60% of the UK population is within three hours driving time of the London airports, and 80% is within four hours. o We see this at other airports. E.g., Rotterdam, which has airline service to London, is not connected by air service to Amsterdam airport, although it is via ground transportation. Similarly communities such as Beauvais Dinard and Tours France are connected to London but not to Paris by air service. They are connected by rail and road ground transport. At Heathrow, 76% of passenger connections are between the oneworld alliance carriers. Heathrow is not a big neutral connecting gateway. It is a dominated hub that largely facilitates connections within the dominant Heathrow is not a big neutral connecting gateway. It is a dominated hub that largely facilitates connections within the alliance. 17 July 2013 Page 86

Assessing Connectivity i 18 3 Comparison of London to Other Markets with Multiple Airports 3.1 There are Many Cases of Major Cities With Multiple Gateway or Hub Airports This chapter demonstrates that there are many cities, many of which are smaller than London, which successfully support multiple gateway airports. Figure 3-1 through Figure 3-3 provide maps of cities with multiple gateway or hub airports. 12 The maps also indicate the market share of each carrier based on its annual capacity in 2011. For example, the largest carrier at New York JFK is Jet Blue with a 24% share of seat capacity at that airport, at LaGuardia it is Delta with 20% and at Newark it is United/Continental with 53%. Dallas has two airports: Dallas-Fort Worth International (DFW) and Dallas Love Field (DAL). At DFW, the largest carrier (measured by seats flown) is American Airlines, with a 72% share of seats. The largest carrier at DAL is Southwest, with a 96% share. This example is one of an airport utilised by a legacy network carrier competing with an airport utilised by a low cost carrier. Other examples exist of competing airports, each with legacy network carriers. A good example is New York, where United/Continental operates a global hub from Newark, while American, Delta and other carriers operate out of JFK. Paris is an interesting example of a city with multiple airports, with the same hub carrier operating from both. Capacity is not constrained at Paris CDG, and thus the operation of multiple airports in the same city is a matter of business choice, not scarcity of airport capacity. 12 In this report, we use the term gateway airport to refer to large airports (over 20 million passengers per annum) with considerable international connectivity, which serve predominately origin-destination (O/D) traffic, although with some connecting traffic. This is different to a hub airport where connecting traffic is a far greater share of passenger traffic. For example, Atlanta and Dubai are hub airports whereas Heathrow and Gatwick are gateway airports. 17 July 2013 Page 87

Assessing Connectivity i 19 Figure 3-1 Select Multi-airport Cities North America 2011 Source: InterVISTAS analysis based on DIIO 2011 data. 17 July 2013 Page 88

Assessing Connectivity i 20 Figure 3-2 Select Multi-Airport Cities Europe, Africa and the Middle East 2011 Source: InterVISTAS analysis based on DIIO 2011 data. 17 July 2013 Page 89

Assessing Connectivity i 21 Figure 3-3 Select Multi-airport Cities Asia and Oceania 2011 Source: InterVISTAS analysis based on DIIO 2011 data. 17 July 2013 Page 90

Assessing Connectivity i 22 Some multiple airport cities have airports that serve different roles, such as an intercontinental network carrier operation at one airport and a low cost carrier domestic operation at another airport. But in some of these cases it is anticipated that those roles may change in the near future. Houston has a major international airport (IAH) and a secondary airport (HOU) that has been traditionally used by a low cost carrier for domestic operations. Houston is now starting to develop HOU for international service, which will compete with overlapping international services at IAH, changing the dynamic of hub competition between the two airports (and between the carriers). Seoul retained its old airport at Gimpo (GMP) for domestic service and service. However, GMP is already used for international service to major regional destinations in Asia including China, Japan and Taiwan. It is expected that the airport will continue its which has developed service to proximate international destinations in Malaysia, Indonesia, as well as to Hong Kong and Seoul. Some multiple airport cities have airports that serve near identical roles. In these cases, the carriers at these airports are directly competing with each other. An example is New York, where both Newark and JFK are intercontinental gateway airports. Newark has one major carrier (United/Continental), plus service from many of its Star alliance carriers. JFK, on the other hand, supports major intercontinental operations for more than one carrier/alliance group: American/oneworld and Delta/Skyteam. Figure 3-4 provides a list of select multiple-airport cities. It also lists the airlines using those cities/airports as a hub for their operations. 17 July 2013 Page 91

Assessing Connectivity i 23 Figure 3-4 Select Cities that Support Multiple Gateway Airports City Airport(s) # of Major Airlines Major Airline(s) New York City JFK (international and domestic) 3 American Airlines Delta Air Lines JetBlue Airways EWR (international and domestic) 1 United/Continental LGA (domestic only + Canada) 1 Delta Air Lines Chicago ORD (international and domestic) 2 American Airlines United/Continental MDW (international and domestic) 1 Southwest Airlines Tokyo HND Domestic (international and domestic) 5 Japan Airlines All Nippon Airlines Skymark Airlines Air Do Skynet Asia Airways NRT International (international and domestic) 6 AirAsia Japan All Nippon Airways Delta Air Lines Japan Airlines Jetstar Japan United/Continental Shanghai SHA (international and domestic) 4 China Eastern Airlines Juneyao Airlines Shanghai Airlines Spring Airlines PVG (international and domestic) 5 Air China China Eastern Airlines Juneyao Airlines Shanghai Airlines Spring Airlines Seoul ICN (international and domestic) 4 Asiana Airlines Eastar Jet Jeju Air Korean Air GMP (international and domestic) 2 Asiana Airlines Korean Airlines Taiwan TPE (international and domestic) 3 China Airlines EVA Air TansAsia Airways KHH (international and domestic) 1 China Airlines TSA (international and domestic) 4 Mandarin Airlines Transasia Airways Far Eastern Air UNI Air 17 July 2013 Page 92

Assessing Connectivity i 24 These examples illustrate that it is quite common for large cities to be successfully served by multiple airports. It is entirely appropriate that the same should occur in London, given that it is the largest city market in the world, as described in Chapter 2. Given the population size and the pace of economic growth in China, it is likely that London will be surpassed by Shanghai at some point in the future. However, even now it is a market that is effectively served by two major airports with overlapping hub carriers. 3.2 Airlines Find it Effective to Have Multiple Hub Operations, Even When These Airports are Close to Each Other Large network carriers commonly operate multiple hubs to provide wider geographical coverage. 13 With the emergence of global airline alliances (Star Alliance, Skyteam and oneworld), hubs have become a focal point as alliances compete for markets. Multiple hub operations by () cities are served as spokes only from the nearest hub in the alliance and by reducing duplication, 14 which is a main focus of hubs. Several carriers have maintained multiple proximate hub operations. Examples are Lufthansa with hub operations in Frankfurt and Munich, Air France/KLM with hub operations in Paris and Amsterdam, and Northwest (now Delta), with hub operations in Minneapolis-St. Paul and Detroit. 15 Lufthansa, a member of the Star Alliance, has shown that multiple hub operations can work under certain conditions. The airline currently maintains hubs in both Frankfurt and Munich, two cities that are geographically close (the two airports are 390 km apart by road). Munich works as a second hub because: (1) while the cities are close, they do have different catchment areas for local traffic;; (2) Munich has Italian routes that Frankfurt does not serve, which further adds to the differentiation of service at the two airports;; and (3) the schedules at Frankfurt and Munich do not compete with each other, they seem to be designed to work together. 16 : first, the hubs should not compete for the same local traffic;; second, they should have different route domains;; and finally, they should focus on working together rather than having competing schedules. Other instances when multiple hubs may be an ideal choice are w-bypassing, strategic positioning, capacity restrictions at the principal hub, complexity costs of giga-hubs, bilateral restrictions and better aircraft utilisation () 17. In a number of cases, having multiple hubs may outweigh the costs involved. 13 Tretheway, M., and Oum, T. (1992), Airline Economics: Foundations for Strategy and Policy (Vancouver: Centre for Transportation Studies, 1992), p. 73. 14 Dennis, N. Air & Space Europe 1/2 (3), p. 53. 15 Fu, X., Homsombat, W., and Oum, T. -airline vertical relationships, their effects and regulatory Journal of Air Transport Management 17, p. 350. 16 Supra note 8, p. 53. 17 - workshop report (The Hague: Airneth, 2005), para. 2.4. 17 July 2013 Page 93

Assessing Connectivity i 25 3.3 Proximate Gateway Airports Can Coexist A key factor for the development of a successful gateway airport is the presence of a large close-in local origin and destination market. Such a large close-in catchment area ensures high-yield travel demand essential for building the airport network. 18 Other important factors that facilitate airport growth are availability of peak-hour capacity to facilitate a flight wavesystem for the hub airline, affiliation of the hub airline with a global airline alliance, availability of air traffic rights to facilitate greater market access, minimized connection times, one-terminal concept, competitive visit costs, good accessibility of the airport by land transportation, possibilities for growth and expansion, and airport amenities. 19 A few theoretical studies have suggested that a single-hub system is optimal because multihub systems reduce economies of density and add complexity costs. In addition, the claim is made, rightly or wrongly, that one big hub provides better connectivity and attracts more passengers than two smaller hubs of half the size. This view has been supported by a few empirical studies that point to de-hubbing strategies by select European carriers (Barcelona by Iberia, Gatwick by British Airways and Milan by Alitalia). However, in practice multi-hub systems are a growing phenomenon. A given carrier may operate multiple hubs at different cities suggesting that there are limits to economies of traffic density. E.g., International Airlines Group operates major hubs at both London Heathrow and at Madrid, and Lufthansa operates multiple hubs at Frankfurt, Munich and, to a lesser extent, Dusseldorf, plus the hubs of subsidiaries Swiss International (Zurich) and Austrian (Vienna). Multiple hubs are especially prevalent in the U.S. and Australia where most carriers operate multiple hubs. Multi-hub systems are also observed at a number of airports within the same city. At Chicago in the U.S., both United/Continental and American while Southwest operates Midway as its largest focus airport. A body of literature is emerging to explain the observed development of multi-hub systems with the following reasons often being cited: increased spatial coverage and market access;; growing air travel demand;; convenient frequencies;; capacity shortages at primary hubs;; strategic behaviour at single hub airports to deter entry by rival carriers;; better aircraft utilization;; bilateral restrictions on access to primary hubs;; limits to economies of traffic density, and political pressure from unions. 20 In regards to multiple gateway airports in London, Doganis (2002) offered one hypothetical scenario involving the transfer of an alliance grouping such as the Star alliance to Cliffe airport from Heathrow. 21 The author cites two main reasons for Cliffe to be an attractive site for another alliance: (1) the airport would create a large amount of capacity quickly for the alliance group moving in, and (2) Cliffe would not face heavy competition from 18 Burghouwt, G. - Discussion paper No. 2013-5, Roundtable on Expanding Airport Capacity under Constraints in Large Urban Areas, February 2013, p. 10. 19 Ibid., p. 10, citing Bootsma (1997). 20 Ibid., pp. 10-12. 21 Doganis, R., p. 16. Cliffe in Kent, to the East of London, was identified by the UK government as a potential location for new airport in 2002. However, the of the location. 17 July 2013 Page 94

Assessing Connectivity i 26 low-cost carriers, at least in the short run. 22 Doganis suggests that the Star Alliance would be the first choice for transferring its flights, as at the time, BMI was a member of the Star Alliance. BMI has since then merged into British Airways, moving the slots once held by Star to the oneworld alliance. Nevertheless, the original argument of an alliance setting up a gateway at a different airport may still be viable, as Heathrow is constrained and the demand for air services is growing. 3.4 Case Study: The Emergence of Multiple Gateway Airports at Moscow For many cities, the multiple airport system has evolved gradually as air traffic levels have grown. In some cases, the cities were initially served by a single major airport but additional airports emerged as the volume of traffic and the number of carriers grew. In other cases, a change in government policy was required to allow multiple airports to develop. Historical examples include: Newark International Airport in New York, which has become a major international gateway, alongside JFK International, despite being an airport with limited scheduled services and very little international service back in the 1980s. Haneda Airport in Tokyo was originally restricted to domestic traffic due to government policy. Since this policy was removed, Haneda Airport has now operating as an intercontinental gateway alongside Narita Airport. Another recent example is the development of Domodedovo International Airport (DME) in Moscow over the last decade or so. In 2000, state-run Sheremetyevo International Airport (SVO) was the dominant airport serving the Russian capital, accounting for 70% of all airline seat capacity to/from Moscow. By comparison, DME, which is privately operated, accounted for Vnukovo (VKO), accounted for 16%. 23 Throughout the 2000s, the operator of DME upgraded the airport, adding space and modern amenities that resulted in many airlines moving their services from over-crowded and dated SVO. As shown in Figure 3-5, traffic at DME grew rapidly with the airport overtaking SVO by 2008. In 2012, DME accounted for 44% of seats capacity in the Moscow market, compared with 41% for SVO. By 2012, DME hosted 46 more airlines than it did in 2000, while SVO lost 24 airlines, dropping from 65 to 41 in that period (see Figure 3-6). 22 Ibid., p. 16. 23 Domodedovo was privatised in 1996 and is operated by the East Line Group on a 75 year lease. However, the runways remain under state control. 17 July 2013 Page 95

Assessing Connectivity i 27 Figure 3-5 Airline Seat Capacity at the Moscow Airports 2000-2012 18 16 Domodedovo (DME) Sheremetyevo (SVO) Vnukovo (VKO) 14 Annual Seats (Millions) 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Official Airline Guide (OAG) Schedules. Figure 3-6 Number of Airlines Operating at Domodedovo and Sheremetyevo 2000 and 2012 2000 2012 Source: Official Airline Guide (OAG) Schedules. 17 July 2013 Page 96

Assessing Connectivity i 28 As importantly, major shifts occurred with the airline alliances. Aeroflot elected to stay at SVO, and its SkyTeam partners did for the most part as well, but the majority of carriers from Star Alliance and oneworld moved to DME, in order to maintain alliance connectivity (see Figure 3-7). Figure 3-7 Alliance Shifts at Domodedovo and Sheremetyevo 2000 and 2012 2000 2012 Source: Official Airline Guide (OAG) Schedules. This migration from SVO to DME did not happen overnight as illustrated in the timeline in Figure 3-8. Some airlines performed surveys and assessments to determine if moving to DME would be beneficial. For some, the prospect of an improved customer experience prompted. Figure 3-8 Alliance Airlines Moving to Domodedovo 2000-2012 Royal Jordanian British Airways, Vietnam Airlines, Iberia, EgyptAir Thai Airways Brussels Lufthansa Austrian Airlines, Japan Airlines Cathay Pacific Air Berlin bmi TAP Portugal United Airlines 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Moved from SVO to DME Initiated service at DME 17 July 2013 Page 97

Assessing Connectivity i 29 3.5 Key Conclusions on Multiple Airport Cities Several key conclusions about multiple airport cities can be made: There are many examples of cities around the world with multiple airports. In some cases, gateway and Midway as the domestic low cost carrier hub). In some cases different airports serve identical roles, with vigorous competition between the airlines (such as New York JFK and Newark). The development of multiple airport systems has been an evolutionary process, the result of changes in the aviation market (passenger demand and air carrier strategy) and, in some cases, government policy. The example of Moscow shows how market conditions can change dramatically as a result of airport and airline dynamics. 17 July 2013 Page 98

Assessing Connectivity i 30 4 Connectivity: Why it Matters and How it Should be Measured 4.1 Connectivity is not the Same as Connecting Traffic. Air connectivity is about ensuring the UK is effectively and affordably connected to the rest of the world. Connectivity should not be confused with connecting traffic. Connectivity is fundamentally about UK access to global markets and regions. Connectivity enhances the productivity of the UK economy and the size of its economy. 24 Connectivity deals with traffic of UK residents to the rest of the world and vice versa. It is a primary enabler of national economic activity. Connecting traffic is that which connects through UK airports on way to their final destination. Domestic connecting traffic (i.e., traffic originating in the UK and destined outside the UK), is fundamentally a part of national connectivity. International connecting traffic involves non-uk residents merely transiting the UK en route somewhere else. It can create some value for the UK through the UK jobs required to service this traffic, although for this to be net gain, it requires that these services can be provided at a mark-up above variable cost. There is also value in that connecting traffic may build volumes on a route to/from the UK to enable additional destinations, use of larger aircraft with lower costs per passenger, and/or higher frequency of service. Connectivity is not simply a matter of the number of routes or number of frequencies operated from an airport or country. It also involves the price of access. A country or region that has expensive connections to other parts of the world will be a less desirable place to do business and will have lower national productivity than a country with affordable access to a broad range of markets, especially the fastest growing markets. It will be a lower cost location to do business and its businesses will achieve higher productivity. Connectivity is not simply a matter of the number of routes or number of frequencies operated from an airport or country. It also involves the price of access. Ensuring that the UK is effectively and affordably connected to world markets and destinations. Analysis of connectivity is more vital than assessing how to maximise the size of a mega-hub for a dominant carrier and its alliances with large flows of international connecting passengers. 24 InterVISTAS Consulting Inc., Measuring the economic rate of return on investment in aviation, December 2006. Report prepared for the International Air Transport Association. 17 July 2013 Page 99

Assessing Connectivity i 31 4.2 Connectivity and the Economy The development of air connectivity is important for the UK economy as a whole, not just the aviation industry. Air travel (like most forms of transportation) is a derived demand. For the most part, people travel to fulfil some other need: to conduct business, facilitate trade, enjoy a holiday or visit friends and family. This is even more apparent when considering air cargo. Goods are flown to markets to be sold or to be used as inputs into other production processes. In economic terms, air travel is a factor of production for another activity a means to an end. In order for these other needs to be met effectively, air travel should be convenient, available and affordable. In other words, aviation connectivity facilitates the growth and development of many other sectors of the economy. This economic enabling role of air transport connectivity is sometimes referred to as the catalytic impacts or wider economic benefits of aviation. There are a number of ways in which aviation connectivity can contribute to the wide economy. These include: trade in services;; trade in goods;; tourism;; business investment and innovation;; and enabling broad national economic productivity. The relationship between aviation connectivity and these catalytic impacts is complex. For example, just as air connectivity can facilitate trade in services, trade in services increases the demand for air travel. The relationship is likely two-way there needs to be an underlying demand for air travel to support aviation connectivity, while at the same time, connectivity helps stimulate trade, tourism, investment and productivity, etc. While air connectivity alone is not sufficient for trade, tourism, investment and productivity, it is a significant contributor. As described in our discussion below, there is compelling evidence of aviation connectivity generating these catalytic impacts. 4.2.1 Trade in Services Air travel plays an important role in facilitating sales, business development and servicing clients. Arguably some of this can be replaced by teleconferencing technology, however, the impact of this technology on demand for air travel is unclear at this stage, although there is some evidence that its impact is neutral or possibly even positive (i.e., teleconferencing is increasing the demand for air travel). 25 Empirical research has concluded that air services have influence and help develop increased trade in services and related employment. For example, a study commissioned by IATA surveyed 625 businesses in five countries (China, Chile, the United States, the Czech Republic 25 E.g., Choo and Mokhtarian (2007), Telecommunications and travel demand and supply: Aggregate structural equation models for the U.S. 17 July 2013 Page 100

Assessing Connectivity i 32 and France), and found that 25% of sales were dependent on good air transport links. 26 This percentage rose to 40% for high tech companies. A study by Irwin and Kasarda (1991) examined the relationship between the structure of airline networks and employment growth at 104 metropolitan areas in the United States. 27 Using data for a 30-year period, the researchers showed that expansion of the airline network serving a region had a significant positive impact on employment in that region. The effect was particularly significant in the service sector. Firms such as management consulting, finance and accounting locate in areas that minimize constraints to contact and maximize access to geographically-dispersed and national markets. Furthermore, analysis was conducted (using non-recursive models) which confirmed that increases in the airline network were a cause, rather than a consequence, of employment growth in both service and manufacturing sectors. In a similar study, Brueckner (2002) examined the impact of air service on employment in the U.S. The author regressed employment in 94 metropolitan areas in the U.S. against a number of factors including measures of air service. 28 The analysis found that a 10 percent increase in passenger enplanements in a metropolitan area led to approximately a 1 percent increase in service-related industry employment. Frequent service to a variety of destinations, reflected in the high levels of passenger enplanements, was found to both attract new firms to a metro area and stimulate employment at established enterprises. 4.2.2 Trade in Goods Although air cargo accounts for 0.5% of the volume of global trade shipments, it accounts for over 35% of the trade value, meaning that air cargo is high value, often times perishable or time-sensitive. 29 Air transport not only supports the export of UK goods to overseas markets but also supplies parts and machinery necessary for production processes in the UK. Academic literature also supports the role of aviation in the trade of goods. Cech (2004) used a cross-section statistical comparison method to investigate how air cargo services affect local economies, including: 1. the attractiveness of an area for the creation of new jobs and retention of existing jobs (measured by employment);; 2. the impact on economic growth (measured by earnings);; and 3. the impact on added value created by employees and subsequent improvement of efficiency and competitiveness (measured by earnings per employee). 30 The author grouped 125 U.S. counties with similar population sizes into seven groups depending on the number of airports to which they connected, the volume of cargo handled 26 Airline Network Benefits, IATA Economic Briefing No. 3, 2006. 27 American Sociological Review, Vol. 56, No. 4, August 1991. 28, Urban Studies, Vol. 40, No. 8, July 2003. 29 Air Transport Action Group (ATA 30 Paper Competition. 17 July 2013 Page 101

Assessing Connectivity i 33 and the frequency of flight service. The author concluded that there is a positive catalytic effect related to accessibility to air cargo services. More specifically, the catalytic effect can lead to an increase in the number of jobs as well as improve regional productivity and increase employee earnings. The transportation sector is most influenced by the accessibility of air cargo services. However, construction, retail and wholesale trade industries are also positively influenced. 4.2.3 Tourism Air service can facilitate the arrival of larger numbers of tourists to a region or country. The spending of these tourists can support a wide range of tourism-related businesses: hotels, restaurants, theatres, car rentals, etc. For the UK, air services are essential to attracting tourists from more distant parts of the world including the Americas and Asia, as well as many parts of Europe. Tourism from emerging economies such as China and India is still developing, and countries around the world are attempting to establish themselves as the attractive tourism ons place it in a strong position to compete for these tourists, but affordable and accessible air service is a critical requirement. This is not to say that the focus should be purely on emerging markets. Established source markets such as the U.S., France and Germany contribute large numbers of tourists and are expected to still be growth markets. Of course, air services also facilitate outbound tourism, which can be viewed as having a negative effect on balance of trade. However, even outbound tourism involves spending in the home economy, on airlines, travel agents, taxis, pre-travel retail, etc. In any case, it is not necessarily the case that money spent by UK tourists flying abroad would be spent within the home economy if there were no air service (e.g., it may be spent on products produced overseas with only a small value-added contribution for the UK economy). 4.2.4 Business Investment and Innovation A key factor many companies take into account when making decisions about the location of offices, manufacturing plants or warehouses is the availability of international air services. A study commissioned by IATA surveyed 625 businesses in five countries (China, Chile, United States, Czech Republic and France), and found that 63% of firms stated that air transport was vital or very important to investment decisions, while a further 24% said it was somewhat important. 31 On average, 18% of firms reported that the lack of good air transport links had affected their past investment decisions, while 30% of Chinese firms reported they had changed investment decisions because of constraints on air services. A study by York Aviation investigating the factors that affect individual company location decisions in Europe found that proximity to a major airport was the fourth most important factor when deciding the country of location of the European Headquarters of companies. Proximity to a major airport was the most important factor when deciding the region of location within the country. 32 31 Airline Network Benefits, IATA Economic Briefing No. 3, 2006. 32 The Social and Economic Impacts of Airports in Europe, York Aviation, January 2004. 17 July 2013 Page 102

Assessing Connectivity i 34 An academic research paper published in 2008 analyzed the relationship between availability of international air services and the location of a European urban areas. 33 The research found the supply of non-stop intercontinental flights was a significant factor in determining headquarter locations (along with other economic, business, labour and tax factors). Empirical research by the authors indicated that a 10% increase in supply of intercontinental air service was associated with a 4% increase in the number of large firm headquarters located in the corresponding urban area. 4.2.5 Long- Term Productivity Impacts Air connectivity promotes better connections with the global economy, allowing better access to new markets, contributes to a faster and more reliable supply chain and facilitates economies of agglomeration specialised businesses clustering in the UK (high tech, finance, etc.). In many ways, the long-term productivity benefits are the aggregate net effect of the previous catalytic impacts (trade, investment, business location, etc.). For example, greater trade allows businesses to benefit from economies of scale and greater specialisation as they sell to a larger market. Investment decisions (expanding operations, developing new operations, introducing new technologies) will also have the effect of improving the productivity of UK workers. Research has been conducted to capture this productivity impact. A 2006 study by InterVISTAS Consulting Inc., commissioned by IATA, used data on 48 countries (including the UK) over nine years to examine the relationship between air connectivity (a measure of international air service) and GDP productivity growth (measured as GDP per labour hour). The ty increased GDP per labour hour by 0.007%. 34 While the impact appears small, it can compound over time and result in a significant boost for economic growth. 35 It should be noted that while the productivity effects of air connectivity are significant, there are considerably smaller that the Information and Communications Technology (ICT). For example, one study estimated that each 10% increase in ICT investment lead to 0.5-1.2% increase in productivity between 1981 and 2000. 36 This is not surprising as investment in ICT over the last 20-30 years has increased dramatically, and it is generally widely recognised that ICT has been the one of the largest drivers of productivity growth in the last quarter-century, and particularly the last decade. 33 Journal of Economic Geography, Vol. 8, No. 4. 34 InterVISTAS 35 The analysis controlled for other factors that contribute to productivity, including capital spending, research and development spending and education. The analysis also used country specific dummies to capture any remaining structural reasons for productivity differences between countries. 36 Estimated from findings in the following study: Whatever Happened to U.S.-Canada Economic Growth and Productivity Performance in the Information Age?, T.M. Harchaoui and F. Tarkhani, Statistics Canada Research Paper #11F0027MIE-25, November 2004. 17 July 2013 Page 103

Assessing Connectivity i 35 4.3 Defining and Measuring Connectivity Given the importance of connectivity, a key question is: how do we measure connectivity? Are there metrics for connectivity which capture its importance and role in the UK economy? Our view is that, given the multiple way connectivity benefits the UK economy, it is not possible to have one single measure of connectivity that captures all aspects of its contribution to the economy. Simple measures such as number of destinations served (or number of destinations served daily), total frequency and total seats operated remain useful measures to understand the scale of connectivity and provide comparison with other major airports. However, it should be recognised that connectivity has both supply and demand elements: Supply Side Carriers can achieve higher traffic levels on any given route if there are connections from other routes operated by itself, its alliance partner, and/or other unaligned carriers. This might result in low costs (economies of route density), although such economies have diminishing returns and at some level of connectivity there may be little or no further benefit. Demand Side Consumers and the regional/national economy derive benefits from higher levels of connectivity. However, there are many dimensions to connectivity, each of which drive different levels of benefits: how many and which cities are connected, the frequency of service, the competitive choice of access, and the price of access. The latter two points are especially important and easily overlooked. Connectivity via a single monopoly carrier (or alliance) only at high fares results in lower consumer benefits than connectivity to the same points by competing carriers The supply side approach assesses the scope of access between an individual airport or country and the global air transport network, population and or global economy. One available measure of connectivity is the IATA Connectivity Index which measures the number of frequencies and available seats to a particular destination. It weights the number of available seats by the size of the destination airport. This weighting reflects both the size and of the destination and the potential for convenient onward connections. Thus, the index recognises that connections to major global gateways provide greater global connectivity than connections to the same number of spoke ends. The connectivity indicator is therefore calculated as: Number of destinations x Frequency x Seats per flight Weighted by the size of the destination airport Divided by a scalar factor of 1000 A higher figure for the connectivity indicator denotes a greater degree of access to the global air transport network. The weight of the destination airport is based on the relative size of that airport measured by its total capacity as a share of the capacity of the largest airport in the world. In our case, Atlanta was used as a benchmark to measure the relative sizes of other airports. The absolute value of the connectivity index has no real meaning;; it is the relative value of various connectivity options that are of interest. 17 July 2013 Page 104

Assessing Connectivity i 36 The IATA Connectivity Index has been used in this report to provide a preliminary analysis of As noted previously, this is only one measure of connectivity, and other measures will be needed to provide a complete assessment of connectivity. Nevertheless, it does provide a starting point for the connectivity discussion. Figure 3-1 summarizes IATA connectivity indices for select airports in Europe, North America and Asia. Figure 3-2 provides details on the number of non-stop destinations and total seat operated capacity at those airports. Figure 3-1 IATA Connectivity Index for Select Airports 2012 350 300 297.0 250 230.4 Connectivity Index 200 150 203.2 203.2 199.1 174.9 156.4 144.5 136.6 126.8 100 59.4 50 38.7 17.2 0 LHR ATL JFK FRA CDG NRT AMS EWR HND LGA LGW ORY STN Source: InterVISTAS analysis based on DIIO data. 17 July 2013 Page 105

Assessing Connectivity i 37 Figure 3-2 Number of non-stop destinations, Seat Capacity and Connectivity of Select Airports 2012 Airport Number of Non-stop Destinations Number of Available Seats Connectivity Index LHR 174 91,992,138 297.0 ATL 230 111,571,448 230.4 JFK 179 60,994,568 203.2 FRA 292 75,032,398 203.2 CDG 249 76,245,128 199.1 NRT 104 44,001,992 174.9 AMS 261 59,702,726 156.4 EWR 168 44,322,270 144.5 HND 70 100,446,324 136.6 LGA 79 36,582,744 126.8 LGW 213 39,824,234 59.4 ORY 146 35,229,532 38.7 STN 162 21,327,528 17.2 Source: InterVISTAS analysis based on DIIO data. Heathrow has the highest IATA connectivity index compared to other large airports in Europe, North America and Asia. Based on the selection of airports in Figure 3-2, Atlanta ranks second with a connectivity index of 230, or about 29% lower than that of Heathrow (297). New York JFK ranks third with a connectivity index of 203, which is about 45% smaller than Heathrow. There are several important points that suggested by the analysis of the IATA connectivity index for the London airports. First, Heathrow has the highest connectivity score despite it not serving the highest number of destinations (Frankfurt serves the most, with 118 more than Heathrow;; Atlanta, Charles de Gaulle and Amsterdam also served more destinations than Heathrow). This is because Heathrow serves more of the major gateway destinations and with higher frequencies, resulting in a higher IATA connectivity index. For example, a non-stop flight from Heathrow to Atlanta would carry a higher weight than a Heathrow has the highest level of connectivity as measured by the IATA Index. non-stop flight from that airport to Birmingham, U.S., because of the larger size of Atlanta airport and the wide available of connections at that airport. Europe and North America. Approximately a third of the connectivity score is attributable to connections to Europe and another third to connections to North America (the finally third is made of connections to Asia, Middle East and elsewhere). It is also notable that much of 17 July 2013 Page 106

Assessing Connectivity i 38 Heathrow connectivity is to major hubs in the rest of the world approximately 56% of 2012 seat capacity at Heathrow was to/from major hubs. 37 By comp seat capacity was to hub airports. Third-airport cities clearly show that secondary airports can develop into viable international hubs with high degrees of connectivity. One may consider the cases of New York City and Tokyo as examples. New York JFK and EWR have connectivity indices of respectively 203 and 145, or a 1.3 based connectivity indices of 175 and 137, respectively. Tokyo and New York City;; the traffic level is arguably sufficient to support two viable international gateway airports in London, each with good connectivity. Currently, the ratio of connectivity between Heathrow and Gatwick is 2.3, marking a significant connectivity gap for Gatwick compared to second largest airports in Tokyo and New York City. Expanding capacity at Gatwick by building a second runway would result in improved connectivity ratio between Heathrow and Gatwick and bring it more in line with other cities that support multiple gateway airports. Finally, the IATA index does not show a connectivity gap for Heathrow compared to other major airports in Europe. Not only is Heathrow better connected compared to other airports in multiairport markets, but its connectivity indicator exceeds the nearest best-connected airport in Europe (CDG) by about 50%. As stated before, other connectivity measures are required to provide a complete picture of the connectivity offered by the UK airports. However, the IATA index does appear to contradict the claim put forth by some that London generally, and Heathrow in particular, is poorly connected. Figure 4-3 presen airports between 2004 and 2012. Over the last eight years, the main London airports improved their respective connectivity indicators by 25-29%. All three airports have contributed to large mega-hub serving London. Figure 4-3 IATA Connectivity Index for LondonThree Main Airports 2004-2012 Airport Connectivity Index 2004 Connectivity Index 2012 % Change Heathrow (LHR) 231.4 297.0 28% Gatwick (LGW) 47.7 59.4 25% Stansted (STN) 13.3 17.2 29% Source: InterVISTAS analysis based on DIIO data. 37 Source: Source: Diio Mi Schedules Data. The airport served with the most seat capacity from Heathrow is New York JFK, followed by Dubai, Dublin, Singapore, Frankfurt, Hong Kong, Amsterdam, Newark, Madrid and Paris CDG. 17 July 2013 Page 107

Assessing Connectivity i 39 The demand side measures of connectivity can be achieved by adapting the IATA connectivity index described above. The IATA index weights the destinations by the size of the airport (in terms of passengers). However, that weighting can be changed to include trade, tourism, GDP, etc., such that it also encapsulates the relationship between various economic factors and connectivity. The range of factors that could be used to weight the destination include: population;; GDP and projected growth in GDP;; export trade (goods and services) and projected growth in trade;; tourism from the source market and projected growth in tourism;; and measures of the preference of outbound tourists location of ethnic populations for visiting friends and relatives (VFR) traffic and rankings of preferred vacation destinations for UK tourists. The alternative approaches to computing weights for connectivity indices enumerated above to broader economic and demographic trends. While it is preferable to develop an index based on regional GDP growth projections or some measure of development in trade and commerce between different regions, finding data on GDP or trade patterns at city level is challenging. One final comment is made. A significant limitation of the IATA index (and the proposed demand side indexes) is that it does not weight connectivity scores by price of access. This would be difficult for global benchmarking of connectivity due to the large data requirements to obtain average fares by routes. The development of demand side connectivity indexes and the possible inclusion of prices are areas worthy of additional research. This will be explored further in later submissions to the Commission. 4.4 Connectivity and Affordability Connectivity is not just about availability, but also about affordability. High connectivity at high prices by a single airport dominated by one carrier and its alliances may have a lower national value than connectivity with competitive price offerings. Any analysis of connectivity needs to give consideration to options which enhance the competitive dynamics of the UK aviation market this competition will ensure route development best meets the needs of the market and foster competitive pricing due to airport and airline competition. Options which only enhance the scope of some airlines will ultimately be detrimental to the wider UK economy. Chapter 6 further discusses the important role of airport competition and access affordability as a goal for air access. 4.5 Key Conclusions on Connectivity and Why it Matters Connectivity should not be confused with connecting traffic. o Connectivity is fundamentally about UK access to global markets and regions. 17 July 2013 Page 108

Assessing Connectivity i 40 Connectivity deals with traffic of UK residents to the rest of the world and vice versa. Connectivity enhances the productivity and size of the UK economy. o Connecting traffic is that which connects through UK airports on way to their final destination. International connecting traffic involves non-uk residents merely transiting the UK en-route somewhere else. This can create some value for the UK through the UK jobs required to service this traffic, and through building volumes to/from the UK to enable additional destinations, use of larger aircraft with lower costs per passenger, and/or higher frequency of service. Connectivity is not simply a matter of the number of routes or the number of frequencies operated from an airport or country. It also involves the price of access. o Ensuring that the UK is effectively and affordably connected to world markets and destinations should be the focus of the Commission's analysis. o Connectivity assessment must recognise the critical roles of price and competition. High priority should be given to capacity development scenarios which enhance competition. Capacity development that is likely to reinforce the position of a dominant carrier and its alliance partners would not be welfare enhancing. There are a number of ways in which aviation connectivity contributes to the wider economy. These include trade in services, trade in goods;; tourism;; business investment and innovation;; and national productivity. The relationship between aviation connectivity and these catalytic impacts is complex. The relationship is likely two-way, but there is evidence of aviation connectivity generating these catalytic impacts. There is no one single measure of aviation connectivity. It is strongly recommended that multiple measures be used, including both supply side and demand side measures of the value of connectivity, and incorporating price. The IATA Connectivity Index is one index of could be of use. It does not merely count routes, it also weights access by flight frequency and importance of the destinations. 17 July 2013 Page 109

Assessing Connectivity i 41 5 Limits to the Returns from Increased Connectivity at a Single Airport 5.1 Introduction: The Benefits of Flight Connectivity at a Single Airport are not Limitless The economic benefits of air connectivity described in Chapter 4 are widely recognised by economists and policy makers. However, one of the key factors in the debate about where to invest and construct additional runway capacity in the London region is where the UK can reap the greatest economic benefits from an increase in connectivity. As an example, Heathrow Airport recently released a report titled 38 The claims of this study are that only one hub can provide flights to long haul destinations, only Heathrow can provide connection opportunities and there are economic benefits of concentrating connectivity at a single airport. The essence of this argument is that benefits of flight connectivity are limitless and thus they should be focused at a single point. This report rejects this claim. There are both supply and demand reasons why the gains from connectivity at a single airport are not limitless. In the parlance of economics, there are diminishing returns to connectivity at any single airport. Perhaps there are benefits of increasing capacity at Heathrow, but these may be modest given its already extensive global connectivity. LHR is already among the best connected international airports in the world. It has even greater connectivity than a count of routes would suggest, due to having 60% of the UK population within three hours driving time, and a full 80% within four hours. This chapter describes the supply and demand side reasons that there is a limit to connectivity benefits from a single airport. Appendix A provides a detailed critique of the arguments made by Heathrow in its report One hub or none: the case for a single UK hub airportas it contains a great number of inaccuracies, omissions and spurious arguments. As noted before, connectivity is not one-dimensional. In particular, we need to distinguish between two scenarios with equal connectivity in terms of flights and destinations: connectivity with high air fares, and connectivity with lower air fares. There are both supply and demand reasons why the gains from connectivity at a single airport are not limitless. Clearly these two scenarios would produce different benefits to the UK. The implications are that any assessment of the connectivity benefits of adding runway capacity at Heathrow versus adding capacity at another airport will need to recognise both the diminishing returns to connectivity benefits at LHR and whether the existing globally high level of connectivity at LHR 38 Heathrow Airport Limited, One hub or none: the case for a single UK hub airport, November 2012. 17 July 2013 Page 110

Assessing Connectivity i 42 complemented with increased and price competitive connectivity at LGW would produce higher national benefits. Chapter 7 discusses the importance of airport competition in ensuring a competitive and affordable air transport network for London and the UK. 5.2 The S- Curve Effect: Diminishing Returns to Flight Frequency A well-known phenomenon in airline route and network planning is the S-curve effect. This was originally observed in the 1970s and became a factor in the regulated era in route decisions such as determining when to introduce a second carrier onto a route. The S-curve relates the share of passengers carried on a route by a given carrier to its share of frequency on the route. The S-curve effect captures the non-linear way in which frequency market share is related to passenger market share. Its characteristics are: Carriers with low frequency shares receive a less than proportionate share of passenger traffic. Carriers with high frequency shares receive a more than proportionate of passenger traffic. Carriers with high frequency shares capture a declining incremental share of the traffic as they increase frequencies. This can be graphed as shown in Figure 5-1. This is an illustrative graph which is based on data from short haul U.S. markets. This phenomenon shows that there are diminishing returns to the flight frequency dimension of air transport connectivity. The S-Curve effect can be applied at the route level (market share between carriers) or at the airport level (market share in the catchment area). While the S-curve was observed and used in the regulated era, a question is whether it still actual data, albeit for short haul U.S. markets. A 2006 paper for IATA examined long haul markets. It found that the S- compete, especially where two legacy carriers or carrier families compete. 39 The effect is weak for cases of legacy carrier competition with LCCs (as price is the stronger driver of passenger market share). However, if the focus is on intercontinental connectivity, where services is generally provided by legacy carriers, then the evidence is that there are diminishing returns to connectivity via higher frequency. It is interesting to note that IATA study findings are that competition between legacy and low cost carriers has virtually no S-curve effect. These are markets where price competition is vigorous and dominates consumer decisions. In our view, this is consistent with the importance of price (air fares) when weighing capacity alternatives capacity which creates lower prices is value increasing. This is discussed further in Chapter 7. 39 U. Binggeli and Pompeo, L. (McKinsey & Company), Analyst Viewpoint: Does the S-Curve Effect Still Exist?, September 2006. www.iata.org/whatwedo/documents/economics/mckinsey_scurve.pdf. 17 July 2013 Page 111

Assessing Connectivity i 43 Figure 5-1 The S-curve effect: Passenger Share vs. Frequency Share US Short Haul Routes Source: Analysis by InterVISTAS Consulting. 5.3 Diminishing Returns to Destinations in a Region Another claim that is sometimes made is that focusing airport capacity at a single airport allows a greater range of cities to be served. We do not dispute this claim. However, we observe that here too there can be diminishing returns to connectivity. Consider the example of service from London to the Pearl River Delta of Southeastern China. The first nonstop service to this region was to Hong Kong (HKG), and it created significant connectivity benefits for the UK (and for the Pearl River Delta). This route provided access not only to Hong Kong, but via ground transport and connecting flights to the entire Pearl River Delta and even to other parts of China. Later, as markets grew and were liberalised, London was connected to Guangzhou (CAN), another city in connectivity, with a higher quality service to those residents in Guangzhou in particular. However, while the connectivity benefit increased, it did not double. Guangzhou already had some connectivity to London via ground transport and connecting flights from HKG. The diminished returns become even more apparent when a third city in the region is considered, such as Macau, Shenzhen or Zhuhai. Again, there is an increase in connectivity benefit but the incremental value is smaller than the first or the second destinations served. There are of course other benefits of adding destinations in a region from London. Doing so enables competing gateways to the Pearl River Delta, with different airlines competing from each gatewa 17 July 2013 Page 112

Assessing Connectivity i 44 price competition benefit, not destination connectivity per se. The corollary of this is that connecting Hong Kong, for example, to two London airports, has an incremental connectivity benefit, but not as large as the first London airport connected to HKG. But there is an important price and service competition benefit by having competition for Pearl River Delta access from two airports in London. This effect of diminishing returns to destination connectivity is true even if the airports are not within driving distance. Consider connecting London to Beijing (PEK) or Xian airports (XIY). There is high initial value to connecting the first of these, perhaps PEK. XIY benefits from this first stage of connectivity via connecting air services from PEK. Development of non-stop air service from London to XIY results in an increment to connectivity from London, and an increase in benefits driven by air service connectivity, yet the national benefit does not double. 5.4 Supply Side Limits to Connectivity: Why Mega- Hubs in West London or the Thames Estuary are not the Answer There are also supply side limits to connectivity. This means that there are increasing costs of supplying connectivity. Here, we focus on the runway capacity of an airport. As more runways are added, capacity increases, but somewhat less than proportionately. At some point increases in capacity by adding runways create operational issues for both the airport and the airlines that may make capacity beyond a certain level uneconomic. Currently, the busiest commercial airport in the world is Atlanta (ATL). In 2012, it handled 95 million passengers via 930,000 aircraft movements per year. 40. This implies that, in round numbers, ATL operates with an average of 100 enplaned/deplaned passengers per movement, or assuming an 80% average load factor, 125 seats per aircraft. ATL is configured with a 2-2-1 runway system, meaning that there are three independent parallel runway sets, capable of simultaneous takeoffs and/or landings, with two of these consisting of a pair of closely spaced runways. The latter allow, for example, one aircraft to position itself while another is taking off, or one to land while another is position for takeoff. Presumably, ATL can increase its capacity somewhat by moving to a 2-2-2 configuration. A number of airports are planning for eventual capacity in the range of 150 million annual passengers, and Beijing has indicated an ambitious plan for one of its airports to reach 200 million passengers. A question is whether such traffic levels are practical, not merely from a point of view of airport and air navigation operations, but also in terms of whether airlines would find it economical to operate from such a station. Airport planners indicate that capacities of 150 to 200 million or beyond are feasible. Additional independent runway sets would be required. There are complications with managing 4 or 5 independent arrival/departure streams, but with effecting planning, systems and training, operations should be feasible. 40 Atlanta Airport Operating Statistics: http://www.atlanta-airport.com/airport/atl/operation_statistics.aspx. 17 July 2013 Page 113

Assessing Connectivity i 45 We do not question the conceptual feasibility of such operations, but we do question whether they would be economical for airlines. Even with a three independent runway system, typically at least one of the outer runways will require taxiing aircraft to cross at least one or a pair of active runways, resulting in longer taxi times due both to distance and pauses while traffic clears before crossing active runways. With four sets of independent runways, taxiing becomes much longer, with more delays and a greater share of movements will be affected by runway crossings. Some traffic may need to cross between four and six active runways. There are also airspace complications. For example, an approaching aircraft on a middle set of runways that needs to abort a landing may need to fly a considerable distance before it can make a turn and blend back into the approach pattern. Such operations will increase airline costs, potentially considerably, and reduce aircraft productivity. This means that a given fleet of aircraft will be able to complete fewer flights per day, increasing the number of aircraft needed to operate a given schedule. Thus airlines will face not only the costs of longer flight/taxi times but also greater capital costs. An increase fleet requirement of perhaps 8 additional aircraft on a 150 aircraft fleet can add in the range of 800 million to 2 billion in airline capital investment, depending on the aircraft purchased. With operating costs of 7,500 per hour, an increase of 1015 minutes in additional flight or taxi times would increase costs per flight by 1,500 to 1,875, or a total of 1.5 to almost 2 million per day for a schedule of 1000 flights. This is 550 to 685 million per annum in additional costs for the carrier. Air carrier operating and capital costs are not the only costs that must be considered. Passengers will face additional travel time costs. If 150 million annual passengers have their travel times increased by 10 to 15 minutes each, then with a travel time value of 30 per hour, annual passenger time costs would increase by 900 million. Some may argue that passenger volumes of 150 to 200 million annual passengers can be achieved by utilising larger size aircraft. Indeed we accept that a hub such as some of the emerging Middle East airports, where there is a very low proportion of narrow body aircraft, may be able to achieve high annual passenger volumes by utilising almost exclusively very high capacity aircraft. But if the gateway role of the airport includes not only intercontinental destinations but also continental and regional destinations, then average aircraft sizes are likely to be what we observe at the currently global leader, ATL, or at emerging markets such as we see in Istanbul where the airport mission includes a large number of destinations that are only economic with narrow body or smaller aircraft. In summary, our caution is that a) airports with more than three independent runway sets might be economically unattractive to airlines (and passengers) and uncompetitive, and b) regardless of the number of independent runways, postulating major increases in average aircraft size udes regional and continental destinations. 5.5 Key Conclusions on Diminishing Returns to the Value of Connectivity at a Single Airport While initially there are increasing network connectivity economies at a given airport, eventually there are diminishing returns to connectivity. A widely known example of this is the S-Curve effect, which shows that at some point, further increases in flight frequency produce diminishing returns to an airline. 17 July 2013 Page 114

Assessing Connectivity i 46 There are also diminishing returns to adding destinations to a region. o The initial routes to a region are typically to the highest population and economic activity centres. Additional routes will be to smaller economies. o Further, initial routes to a region provide access via regional connecting services to other cities in the region. The eventual development of non-stop service to these other cities will increase connectivity benefits, but not proportionately. There are supply side diminishing returns to connectivity. The largest airports in the world are currently under 100 million annual passengers and 1 million aircraft movements. o undermining the regional hub role of an airport in favour of specialisation only in longhaul intercontinental service (e.g., Dubai);; o or it will require adding additional sets of independent runways, which greatly lengthen taxi times and diminish aircraft productivity and economics for air carriers. o In particular, the concept of a single gigantic airport for the London region is operationally and economically problematic, if not today then certainly for the air traffic of 2030 and beyond. 17 July 2013 Page 115

Assessing Connectivity i 47 6 Ensuring Robustness in the Face of Dynamic Market Conditions 6.1 Airline Business Models are Evolving The rationale behind a third (or even forth) runway for Heathrow is that Heathrow will continue as the dominant network hub for the UK, serving network carriers and facilitating connecting traffic. At the same time, Gatwick and Stansted are assumed to accommodate largely point-topoint traffic carried by LCCs, charter airlines and some network carriers. There are a number of problems with this rationale. As already discussed in this report, the London market has a relatively small proportion of transferring traffic and this is not expected to increase, particularly as London is an inconvenient connecting point for many traffic flows (e.g., Europe-Asia). More fundamentally, it is assumed that aviation market and airlines business model of today will still apply in 2030 and even in 2050. In other words, the UK and London aviation market will be the same but bigger. However, this assumption is fundamentally flawed there is already emerging trends in the industry which bring into question some the assumptions about future airport capacity requirements, which are outlined in sections 6.2 and 6.3. That the aviation industry is continually evolving is no surprise when one considers the historically changes it has undergone, for example: The arrival of the Boeing 747 in the 1970s which substantially reduced airline unit costs and contributed to air travel becoming a The advent of vacation charter airlines offering cheaper overseas vacations and circumventing restrictive bilaterals. Deregulation of air markets in North America, Europe and elsewhere leading to lower fares, greater consumer choice and the bankruptcy of some established airlines. The development of airline alliance groups (and prior to that, codeshare agreements) as a means of expanding network reach. The transformative impact of Low Cost Carriers (LCCs) across the globe and their impact on legacy /network carriers. The emergence of the mega-hub carriers in the Middle East and Turkey. 17 July 2013 Page 116

Assessing Connectivity i 48 6.2 Evolution of the LCC Model The original LCC model focused on cost reduction in order to implement a price leadership strategy on the markets they serve. These low costs are achieved by utilising generally young fleet of homogenous aircraft (normally A320 or B737 models) with high density seating, operating to secondary airports in order to reduce airport fees and delays. Services were operated on a point-to-point basis (connecting traffic was not facilitated) and high aircraft utilisation was achieved by having aircraft turnarounds at airports and by operating short and medium haul routes. Some LCCs still adhere to this model, such as Ryanair in Europe and Spirit and Allegiant Air in the United States. 41 These types of carrier have sometimes been characterised as ultra-low cost carriers due to very low unit costs and simplicity of operation. They are also characterised by the high volume of ancillary revenues they generate (e.g., hold baggage fees, seat selection, boarding pass printing, on-board services and sales, etc.). 42 Other LCCs have diverged from this model significantly. Some are making major changes in their business models to increase the percentage of traffic travelling on premium fares. Recognising that these features will add complexity and, in turn, costs, their hope is that the additional costs of complexity will be lower than the additional benefits of higher yield derived from the transportation of higher percentage of premium traffic. Examples of carriers in this category include Southwest and JetBlue in the U.S. and easyjet in Europe. This latter type of LCC are also seeking to attract a greater proportion of business travellers. 43 Other LCCs are changing their business models to include the establishment of subsidiaries to fly smaller aircraft, exemplified by the decision of Westjet in Canada to operate the Dash-8 Q- 400 turboprop aircraft. Similarly, JetBlue operates both A320 and Embraer regional jets. The sections below discuss other ways in which the LCC business model is changing: long haul services and connecting traffic. 6.2.1 Long Haul Services It has long been questioned whether LCCs could provide sustainable services in intercontinental markets. These suppositions were made on the basis that LCCs were able to achieve high utilization rates in their short and medium haul markets through their primarily point-to-point services, extremely fast turn-arounds, little to no catering and in-flight services. Intercontinental services require much greater turn-around times due to the length of flights that, in turn, required for example, more catering services as well as the passage of passengers through immigrations and customs. Moreover, intercontinental services require the transportation of connecting passengers to make them economically viable, as well as high yield business/premium cabins. 41 Even here there are differences. For example, Ryanair operates a very modern fleet in order to reduce fuel costs, while Allegiant operates much older MD-80 aircraft which have lower capital costs. 42 This is increasingly true of other types of LCCs and network carriers. 43 At the same time, many network carriers are adapting the business practices of LCCs, such as charging for checked baggage. For example, British Airways now offers hand luggage only fare for short haul flights from Gatwick. 17 July 2013 Page 117

Assessing Connectivity i 49 Gradually, though, LCCs are attempting long haul services. Recent examples include Air Asia X, a subsidiary of the low cost carrier Air Asia, and Jetstar, the low cost subsidiary of Qantas Airways, based in Australia. From its base in Kuala Lumpur, Air Asia X has operated services to London, Paris, Melbourne, Christchurch (New Zealand) and various points in China, some with flying times in excess of 10 hours. 44 The carrier has dropped the services to London and Paris citing high taxes and weak demand (the services ran from March 2009 to April 2012), but still operates long haul service within Australasia. Jetstar is operating long haul services of up to 10 hours from Australia to Hawaii, Japan and other points in Asia. Philippine LCC, Cebu Pacific has also indicated that it operates services to the Middle East, Europe and the United States using A330-300 aircraft starting in 2013. 45 Singapore Airlines has established an LCC subsidiary, Scoot, aimed towards low-cost long-haul flying. eight B787s and has announced that it will start service from Copenhagen and Stockholm to Fort Lauderdale, beginning in November 2013. 46 (Norwegian is the third largest carrier at Gatwick). It remains to be seen how successful and how large long-haul LCC operations can become, but it is clear that there is a growing interest in entering the long haul, particularly as new opportunities in short haul dry up, and this will have major impact on the operation of airline businesses. 6.2.2 Connecting Traffic There is a growing interest from LCCs in entering the long haul, particularly as new opportunities in short haul dry up. Traditionally, LCCs have not facilitated connecting traffic, whether between its own services or with other carriers, due to the significant operating and IT costs involved. Many carriers still adhere to this approach, such as Ryanair, easyjet and Allegiant. Others, such as Southwest Airlines and JetBlue do facilitate connections within their own networks. There is an increasing use of interline and codeshare agreements between low cost carriers and long-haul network airlines. More recently, though, there is an increasing use of interline and codeshare agreements between low cost carriers and long-haul network airlines. This is becoming an increasingly important area of growth in the aviation market. Carriers such as WestJet in Canada, JetBlue in the U.S., and Virgin Australia and Jetstar in Australia have entered into codeshare and interline agreements with network carriers: JetBlue has agreements (interline or codeshare) with 24 carriers including Aer Lingus, Air China, American Airlines, El Al, Emirates, Japan Airlines, Lufthansa and Turkish Airlines. 47 44 The flight time to London from Kuala Lumpur is approximately 13 hours, while the flight time to Christchurch is approximately 11 hours. 45 http://www.cebupacificair.com/pages/pressreleases.aspx?pid=845. 46 http://worldairlinenews.com/2013/03/14/norwegian-is-coming-to-fort-lauderdalehollywood/. 47 http://www.jetblue.com/airline-partners/. 17 July 2013 Page 118

Assessing Connectivity i 50 Canadian LCC, WestJet has codeshare agreement with eight airlines (including American Airlines, Air France, British Airways, China Eastern, Delta and Korean Air) and interline agreements with another 25 airlines. Jetstar codeshares not only with its parent company, Qantas, but also Japan Airlines and American Airlines (and interlines with 25 other airlines). Virgin Australia has codeshare agreements with Etihad covering over 50 routes and with Singapore Airlines on over 75 routes. These arrangements enhance the profitability and network reach of the carriers without major changes to their business models, and enhance the connecting options of customers. Etihad Airways, which is not part of any airline alliance, reports that 19% of its revenues in 2012 originated from airline partnerships. 48 Virgin Australia reported that the agreement with Etihad base. 49 6.2.3 Possible Implications for Gatwick It is very unlikely that there will not be changes to the LCC business model that will impact the London airports. LCCs in the UK and Europe have achieved impressive growth over the last decade but the opportunities for growth in the short haul market are diminishing and the traditional market is fairly mature. Already, easyjet is operating into the medium haul market outside Europe, such as Moscow, Tel Aviv and Sharm El Sheikh. It is increasingly likely that European LCCs will seek out opportunities outside Europe, especially as the EU signs more open skies agreement with outside countries. Eventually, this may require these airlines to invest in long haul aircraft or, alternatively, new long haul LCCs may be set up. 50 Norwegian Air Shuttle is embarking on long haul services using B787s. It is very conceivable that such services will be operating from Gatwick by 2030. This could occur in a number of ways, for example: Norwegian could be operating some of its B787s from Gatwick to North America and Asia (it already has a base at Gatwick). An existing LCC such as easyjet could purchase A330 or A350 aircraft and operate service to North America, the Caribbean, Africa or Asia. Although no UK based LCC has yet indicated an interest in long haul traffic. A new LCC could be established at Gatwick based around a long haul business model. Equally, by 2030, LCCs may be have established codesharing or similar partnerships with long haul carriers, similar to those established in Asia and North America. While currently no UKbased LCC has expressed an interest in such a venture, the successes achieved elsewhere 48 http://centreforaviation.com/analysis/japan-airlines-and-jetstar-japan-embrace-lcc-hybridity-codesharing---andreap-rewards-99499. 49 Ibid. 50 Ryanair CEO, Michael 17 July 2013 Page 119

Assessing Connectivity i 51 may persuade some LCCs to export this opportunity. 51 This new model of connecting traffic is unlikely to emerge at Heathrow, even with runway expansion. The higher costs, operational restrictions and the dominance by certain carriers are likely to make Heathrow unattractive to most low cost carriers. Therefore, the emerging model of connecting model will be best facilitated by expansion at other airports that have a history of low cost carrier operations, and which are not dominated by a single carrier and its alliances. While these scenarios may seem inconceivable at the moment, consider that the idea of LCCs taking part in codeshare agreements would have seemed far fetched 10 years ago. Consider also the alternative if UK LCCs do not pursue these types of strategy. These LCCs will be restricted to seeking out growth in the point-to-point markets largely within Europe (plus some parts of Central Asia and North Africa). As time goes on, these markets will be more and more saturated, and their ability to stimulate demand will become much more limited. Facing stagnation, the carrier will only be able to achieve growth by competing market share from other carriers, weakening profitability. 6.3 Changing Alliances Approximately 60% of global passenger traffic is carried on one of the three major airlines alliances: Star Alliance, oneworld or SkyTeam. 52 For Heathrow, this proportion is likely even higher. The current membership of the alliances is provided in Figure 6-1. Notable airlines that have not joined an alliance include the Virgin group of airlines, Emirates and Etihad. No LCCs have joined an alliance, with the possible exception of Air Berlin, which joined in oneworld in 2012, although this carrier has many characteristics of a network carrier. 53 It should be noted that these alliances are in a constant state of flux and could be quite different in the future. For example, the U.S. carrier mergers have seen Continental leave SkyTeam in 2009 (as did Copa Airlines) ahead of its merger with United. US Airways will leave Star Alliance following the completed merger with American Airlines. alliance with Virgin Atlantic with result in Virgin joining SkyTeam. 54 The previous section provided examples of alliance and non-alliance carriers forming partnerships with LCCs. Equally, partnerships between network carriers, both within and outside alliances, are subject to change. A recent and prominent example is the partnership between Qantas and Emirates. Starting in April 2013, Qantas flights to Europe (and some other parts of the world) will stopover at Dubai and the two carriers will codeshare over large parts of works. It brings to an end a nearly 20 year old partnership with British Airways which connected passengers between London and Australia over Singapore. The partnership may have future implications ntry of Qatar Airways into that alliance. 51 EasyJet does have an arrangement with Emirates allowing Emirates Skywards members to redeem their points with easyjet. 52 Source: CAPA, Centre for Aviation. 53 Air Berlin used to operate an LCC business model, but more recently has taken on characteristics of a network airline, such as facilitating connections and operating a wider range of aircraft types. 54 http://www.virgin-atlantic.com/gb/en/travel-information/customer-service/latest-news/strategic-alliance-withdelta-airlines.html. 17 July 2013 Page 120

Assessing Connectivity i 52 Figure 6-1 Airline Alliance Members May 2013 Adria Airways Aegean Airlines Air Canada Air China Air New Zealand ANA Asiana Airlines Austrian AviancaTaca Blue1 Brussels Airlines Copa Airlines Croatia Airlines Egyptair Ethiopian Airlines LOT Polish Airlines Lufthansa Scandinavian Airlines Singapore Airlines South African Airways Swiss TAM Airways TAP Portugal Thai Turkish Airlines United US Airways Source: Airline alliance websites. * Announced 9 th October 2012. Aeroflot AerolineasArgentinas Aeromexico Air Europa Air France Alitalia China Airlines China Eastern China Southern Czech Airlines Delta Air Lines Kenya Airways KLM Korean Air MEA Saudia TAROM Vietnam Airlines XiamenAir Air Berlin American Airlines British Airways Cathay Pacific Finnair Iberia Japan Airlines LAN Airlines Qantas Qatar Airways* Royal Jordanian S7 Airlines 17 July 2013 Page 121

Assessing Connectivity i 53 Another example is the commercial agreement between the Air France/KLM group, Air Berlin and Etihad, announced in November 2012. 55 The agreement includes code-sharing between the Air France/KLM and Air Berlin on some European routes (Etihad has a 29.2% holding in Air Berlin) and a strategic partnership between Air France/KLM and Etihad involving code-sharing across their respective networks and eventual integration of frequent flyer programs. This agreement overlaps with two alliances - Air France/KLM is an anchor airline in SkyTeam and Air Berlin is a member of oneworld. These recent partnerships involving Emirates and Etihad show that some carriers are choosing to benefit from the connectivity offered by Middle Eastern carriers rather than fight these carriers head on. This could result in a greater shift of connecting activity towards the Middle East and away from Europe (and away from Asian hubs such as Singapore). As these examples illustrate, airline alliances, partnerships and joint ventures are constantly changing. The airline relationships that contribute to the UK connectivity today may be quite different in 10-20 years. 6.4 Conclusions Some carriers are choosing to benefit from the connectivity offered by Middle Eastern carriers rather than fight it. The key point in this chapter is the aviation industry is future airport capacity based on the current status quo risks limiting and the benefits to consumers. In this chapter, a number of industry trends were identified that could substantially change the aviation industry structure and future infrastructure requirements. However, we acknowledge that there may be other unanticipated trends and other events that will impact on the aviation industry. future airport capacity based on the current status quo risks limiting development and the benefits to consumers. The important consideration is that the chosen airport infrastructure solution is one that is robust and flexible to future changes in the industry and in aviation demand. This robustness comes about not just from increased capacity but also by fostering competition. These competition dynamics will lead to competitive pricing, will spur innovation and will ensure that benefits for consumers and ultimately the wider society. scenarios. Whether there is a move of airline alliances to Gatwick or the development of LCC connectivity and long haul routes, a second runway at Gatwick ensures that high levels of connectivity can be achieved for London and the UK. 55 http://centreforaviation.com/analysis/etihad-ties-up-with-air-france-klm-next-qatar-oneworld-and-the-aviationworld-turns-on-its-head-84721. 17 July 2013 Page 122

Assessing Connectivity i 54 7 A Demonstration of National Incremental Connectivity Benefits of Dual Gateway Airports: The Fallacy of One Hub or None 7.1 Introduction The arguments in the previous chapters are largely conceptual, although based on fundamental economic and airport operating principles. We now turn to a practical examination of the issues. In a separate report (London Airport Capacity QSI Scenario Analysis), we utilised airline route planning software to evaluate three main scenarios: 56 1) Scenario 1 - Third Heathrow Runway This scenario assumes the construction of a third runway at Heathrow, with no development at Gatwick. In this scenario we assume that network carriers of all alliances (and non-aligned carriers) will have greater scheduling flexibility at Heathrow than at present, and the ability to add new destinations and increase frequencies on existing routes at Heathrow, resulting in improved connectivity for passengers travelling to, from and via Heathrow. 2) Scenario 2 Gatwick Alliance Gateway This scenario envisions the development of a second runway at Gatwick, with no change in runway infrastructure at Heathrow. In addition, with continuation of the capacity constraint of only two runways at Heathrow, by the year 2030 the scenario assumes a corresponding 57 The scenario further assumes that the alliance shift results in some improvement in available capacity at Heathrow, allowing some new entrants to Heathrow under slot allocation rules which give preference to entrants, and those incumbent carriers that remain at Heathrow could expand their operations there somewhat, including enabling carriers currently with split Heathrow/Gatwick operations to consolidate at one of the airports. 3) Scenario 3 Gatwick Independent Gateway This scenario also involves the construction of a second runway at Gatwick, with no new runway at Heathrow. However, this scenario assumes no wholesale transfer of an Heathrow to Gatwick. It is assumed that carriers at Gatwick partner to facilitate passenger connectivity, particularly between LCCs and network carriers, and that some LCCs start to operate long haul services (See Chapter 6 for more discussion on evolving LCC business models). runway capacity is added to any London airport, to act as a baseline for comparison. The 56 57 Airport Operating Models. 17 July 2013 Page 123

Assessing Connectivity i 55 scenarios are reasoned outcomes of future traffic development under different capacity increases. They have been developed using plausible and realistic assumptions for building flight connectivity, although our modelling does not necessarily represent an optimized network or schedule. That would require additional analysis which could show even greater gains in connecting traffic in this scenario. Given the timeline required to approve and build a new runway at any London airport, any analysis of subsequent traffic impacts must be placed in a future context. Therefore, the analysis in the study has been conducted based on air service scenarios set in the year 2030. Given the timeline considered (17 years from now), assumptions have necessarily been made regarding future market growth, air service supply, and even airline business models. These assumptions are detailed in the separate report. 7.2 Traffic Impacts of Alternative Capacity Options at Heathrow and Gatwick This section provides a summary of the model results from the two scenarios. Full details of the results are provided in the separate report. The forecast traffic in each scenario is summarised in Figure 7-1. These match the air traffic forecasts produced by SH&E on behalf of GAL. When constrained (in the base case), Heathrow and Gatwick are forecast to serve approximately 120 million annual passengers (combined) by 2030 in the absence of any runway development at either airport. By comparison, with a third runway at Heathrow it is forecast that the two airports combined will serve 142 million passengers;; with a second runway at Gatwick (either with or without an alliance transfer), a total of 137 million passengers are forecast to use the two airports. The difference between the 137 and 142 million passengers (a 3% gap) is a function of the analysis being set in 2030, during the spooling phase shortly after a new Gatwick runway would open. The expectation is that airlines would continue to add service at Gatwick in the years following, and that this differential in total Heathrow+ Gatwick traffic would decline (or reverse) in subsequent years. Figure 7-1: 2030 Heathrow and Gatwick Traffic Forecasts (Millions) LGW R2 - Indep 17 July 2013 Page 124

Assessing Connectivity i 56 Under each scenario, the forecast proportion of local (London origin/destination) and connecting traffic differs, primarily as a result of the degree of connectivity generated by the incremental flights. The results are summarised in Figure 7-2. Under the base case scenario (no capacity increase) be connecting passengers in 2030, while 69% are forecast to be London O/D travellers. By comparison, just 4% of Gatwick In Scenario 1 (Third Heathrow Runway), the third runway at Heathrow results in new flights and improved connectivity, resulting in an increase in the proportion of connecting passengers at the airport, to 34%. With no change in runway capacity at Gatwick, connecting traffic is expected to mirror the base case at 4%. In Scenario 2 (Gatwick Alliance Gateway), the additional runway capacity at Gatwick and the vacated slots at Heathrow resulting from the alliance move to LGW provide the opportunity to improve connectivity at both airports. At Heathrow, connecting passengers are forecast to make up 39% of the total (higher than resulting from a third runway at Heathrow), while Gatwick is forecast to increase its proportion of connecting passengers to 21%. In Scenario 3, (Gatwick Independent Gateway), 17%, a significant increase relative to the base case. The figure is lower than in Scenario 2, as it lacks the level of service co-ordination that would arise from an alliance move to Gatwick. Figure 7-2: 2030 Forecast Local and Connecting Traffic 17 July 2013 Page 125

Assessing Connectivity i 57 In summary, the key findings of this analysis are: The second runway at Gatwick results in similar levels of traffic for combined Heathrow+ Gatwick as the third runway at Heathrow would. The analysis first projected unconstrained demand for air travel, but then constrained the forecast to the likely seat capacity at Heathrow and Gatwick in 2030, aligning it with the forecast produced by SH&E. The Gatwick Alliance Gateway scenario is forecast to result in highest combined traffic (unconstrained) for the two primary London airports, a result of having two effective gateways which can better compete for connecting traffic. This is followed by the Gatwick Independent Gateway scenario, which is also forecast to result in higher combined traffic (unconstrained) than building a third runway at Heathrow. However, sufficient airport capacity will not exist in 2030 to meet unconstrained demand. After incorporating traffic spill to account for the capacity constraint, the three scenarios result in similar combined traffic volumes. (Total 142 million for a third runway at Heathrow, vs. 137 million for a second runway at Gatwick). The difference between the 137 and 142 million passengers (a 3% gap) is a function of the analysis being set in 2030, during the ramping phase shortly after a new Gatwick runway would open. Forecasts produced by SH&E for the period after 2030 up to 2050 indicate that airlines would continue to add service at Gatwick in the years following, and that a second runway at Gatwick would result in higher combined traffic volumes than a third runway at Heathrow. Both Gatwick runway two scenarios results in greater levels of connecting traffic for the combined Heathrow Gatwick market. In the Gatwick Alliance Gateway scenario especially, the additional runway capacity at Gatwick and the vacated slots at Heathrow provide the opportunity to improve the connecting product at both airports. In addition, as will be discussed in the next chapter, the scenario with a second runway at Gatwick produces a large price competition benefit for London and the UK. Heathrow is already dominated by a one airline which currently holds rights to 50.6% of Heathrow slots, and including its alliance partners has access to 60.5%. If additional runway capacity is created at Heathrow, normal slot allocation rules will result in the dominant carrier and its alliances getting access to the largest block of the new Heathrow slots. The scenario with an additional LHR runway is thus likely to increase dominance at Heathrow, and hence for London airports in general (as in this scenario the other airports have no increase in capacity). In contrast, under the scenarios with a second runway at Gatwick provides not only a greater increase in connecting traffic across London airports, but it also stimulates airport competition. 17 July 2013 Page 126

Assessing Connectivity i 58 7.3 Implications for Connectivity Section 4.3 examined the connectivity of Heathrow and Gatwick using the IATA Connectivity Index. This connectivity index can be applied to the result of the QSI modelling to provide an indicator of the possible connectivity impacts in 2030. 58 The results are provided in Figure 7-3. The absolute value of the connectivity index has no real meaning;; it is the relative value of various connectivity options that are of interest. As described in Section 4.3, Heathrow has a much higher connectivity index than Gatwick, due largely to the strength of its connections to hubs in Europe, Middle East and North America. As can be seen, the greatest connectivity growth achieved by 2030 is with a second runway at Gatwick in combination with an alliance move to Gatwick. This is projected to increase the combined (Heathrow + Gatwick) IATA index by 22%, higher than the increase with a third runway at Heathrow. A second runway at Gatwick with no alliance produces a slightly lower connectivity increase (16%), although difference between the scenarios is small. Thus, the analysis indicates that a second runway at Gatwick can offer similar levels of connectivity to a third runway at Heathrow. In fact, preliminary research indicates that the connectivity improvement is even greater with a second runway at Gatwick after 2030, as traffic at that airport develops even further (additional details will be provided in later submissions). Figure 7-3: IATA Connectivity Index for the 2030 Scenarios Current (2012) LHR R3 R2 LGW - Alliance R2 LGW - Independent Heathrow 297 356 282 302 Gatwick 59 64 151 112 Total 356 421 (+18%) 434 (+22%) 414 (+16%) 58 The destinations are weighted by their traffic size using in 2012 volumes. The picture will likely be different in 2030, but it is very difficult to obtain air traffic forecasts for 2030 for all the destination airports. Some experimentation was conducted using regional growth rate forecasts produced by Boeing and Airbus (e.g., for Asia, Europe, North America, etc.), which were applied to each airport in the respective regions. The results suggested that while the absolute connectivity scores changed, the relative difference between the options remained the same: LGW R2 - Alliance still had the highest connectivity increase and LGW R2 Independent had the lowest. 17 July 2013 Page 127

Assessing Connectivity i 59 7.4 Conclusions This chapter examines three scenarios for capacity development in the London market with very different results: Scenario 1: Third Heathrow Runway Gatwick and then Stansted become capacity constrained. No hub carrier emerges at these two airports, instead service is similar to present point to point within Europe with some charter traffic. The dominant carrier and alliance at Heathrow grows the most. Limited airport competition, undermining the policy of breaking up BAA to foster airport competition. Only a modest increase in total London connecting traffic. Scenario 2: Gatwick Alliance Gateway A group of alliance carriers move from Heathrow to Gatwick. The dominant carrier at Heathrow is able to expand, using some of the slots freed up by an alliance move to Gatwick. Greater level and proportion of connecting traffic at London airports. Competing carrier alliances at competing airports. Scenario 3: Gatwick Independent Gateway Gatwick LCCs and other carriers begin offering connecting itineraries within their own networks. This is already common among LCCs outside of Europe (Southwest Airlines, WestJet, JetBlue, etc.). Gatwick LCCs will begin offering connecting itineraries to/from other airlines. This is increasingly common among LCCs outside of Europe (See Chapter 6), and examples of external cooperation among European LCCs are emerging (e.g., easyjet has partnered with Emirates to accept Skywards Miles bookings on easyjet flights). LCCs will offer long haul services to/from Gatwick. Long haul LCC flights are increasing around the world, and one Gatwick-based LCC, Norwegian, is launching long haul services this year. Gatwick is able to compete with Heathrow acting as platform for innovative airline businesses. Greater level and proportion of connecting traffic at London airports. 17 July 2013 Page 128

Assessing Connectivity i 60 These results confirm the key propositions of this report, that there are diminishing returns to connectivity and that airport competition Heathrow runway scenario actually produces a smaller increase in connecting traffic than some Gatwick runway scenarios. It can be concluded that there is little or no connectivity gap associated with a second runway at Gatwick, while at the same time this option provides the benefit of greater competition, greater robustness, better noise impacts, etc. It may be hard for some to envision Gatwick becoming major competing gateway for London, but it must be kept in mind that this scenario is some 17 years into the future, during which time there will be considerable changes to the aviation industry. There is historical precedent for airports merging as new major airports or gateways: In the early 1980s, Newark had limited scheduled services and very little international service (at the time most international services operated from JFK). It largely acted as a hub for an early LCC, People Express. However, this changed with the start of services to London by Virgin Atlantic in 1984 and the merger of People Express and Continental Airlines in 1987. The airport went to become a major international gateway and airline hub. Until 2007, Haneda Airport in Tokyo was operated as a domestic airport as dictated by government policy. The government removed the requirement to only operate domestic services and, following the building of an additional runway (completed in 2010), the airport has attracted significant volumes of international traffic (in 2012, it handled 7.9 million international passenger). 59 The airport now serves as a domestic and international hub alongside Narita Airport, Tokyo main international hub. In China, Guangzhou Baiyun International Airport was a limited domestic hub nearly 10 years ago, with almost no international traffic. Now it is emerging as an intercontinental gateway. Shenzhen International Airport is undergoing this transformation right now. In Moscow, Domodedovo International Airport (DME), has grown rapidly over the last decade or so to become the largest airport serving the Russian capita overtaking Sheremetyevo International Airport (SVO). Clearly, it is possible to have two airports competing as gateway airports, particularly in a market the size of London. The next chapter discusses the benefits of this airport competition for consumers and the economy. 59 Source: Tokyo International Airport Terminal. 17 July 2013 Page 129

Assessing Connectivity i 61 8 The Importance of Competition and the Price of Air Access in Connectivity 8.1 Introduction Until the late 1970s/early 1980s, much of the aviation industry (airlines, airports and air navigation) were government run as monopolies or private companies heavily regulated by governments (e.g., the U.S. airline industry). However, it became widely recognised that government control of the industry was not working. Competition was being severely hampered, resulting in inefficiencies, high prices and poor service quality for consumers. Recognising the potential benefits of greater competition, many governments started deregulating the aviation industry (along with other industries) in the late 1970s. One of the earliest instances of liberalisation was the deregulation of the U.S. domestic air market in 1978. Prior to deregulation, pricing and route entry on domestic routes in the U.S. was tightly controlled by the government. Deregulation removed all of these controls and allowed market forces to determine service and price levels. The UK was also an early adaptor of deregulation with the privatisation of British Airways and British Airports Authority (BAA) in 1987. Deregulation has also been pursued within the European Union (EU) - between 1987 and 1993, the EU introduced three packages of reforms that almost fully deregulated the EU air market. Carriers from within the EU are now free to operate any route within the EU without restriction on price or capacity, including cabotage (i.e., domestic air travel within a member state), which has been permitted since 1997. The UK further addressed the issue of competition by requiring BAA to divest itself of three airports: one of the competing Glasgow Edinburg pair of airports, and two of the three London airports it operated. These divestitures were bold but difficult policy decisions. The willingness to make these decisions reflects the great importance government places on air transport competition in enabling economic prosperity and social connectivity. 8.2 The Dramatic Impact of Competition The introduction of greater competition to aviation market substantially restructured the industry and brought about significant benefits for consumers. For example, a 2003 study by the European Union found that the liberalisation of the EU air market (the single aviation market) had resulted in the following: 60 Increased route competition. Between 1992 (the year before the EU air market was fully liberalised) and 2000, the number of intra-eu routes served by more than two carriers increased by 256% while the number of domestic (within member state) routes with more than one carrier had increased by 88%. 60 European Union and the European Civil Aviation Conference to the 5th Worldwide Air Transport Conference (ICAO).The analysis consisted of a before-and-after comparison of fare and traffic. 17 July 2013 Page 130

Assessing Connectivity i 62 Reduced fares. In real terms (i.e., after adjusting for inflation) discount economy fares, which represent the vast majority of tickets purchased, declined 34% between 1992 and 2000. Over the same period, full economy fares declined 5% in real terms. Increased routes and capacity. There was a strong rise in the number of city-pairs served and in overall capacity provided in the EU market. The total number of intra-eu citypairs increased 74%, while the number of domestic city-pairs increased 12% between 1992 and 2000. Both the number of flights and seats operated increased by an even greater amount, indicating that overall capacity has increased substantially. Considerable research has established that the introduction of greater competition through liberalisation/deregulation led, overall, to lower air fares and greater consumer choice (more routes, more carriers, greater frequencies). 61 The lower air fares resulting from competition are particularly important as fares are an important driver of demand for air transport. Empirical research has found that there was a significant demand response to changes in air fares. 62 The response to air fares depends on the market and trip purpose (leisure travellers are more price sensitive to fare changes than business travellers), but the elasticities have tended to range from -0.5 to -2.0, as shown in Figure 8-1. In other words, a 10% decline in air fares increases demand by 5-20%. 61 For example, see: 983, Vol. 14, No.1, pp 118-138., InterVISTAS-ga 2, June 2006. - Piermartini, R. and Rousová, L. (World Trade Organization),, Staff Working Paper, December 2008. 62 For example, see: Air Travel Demand Elasticities: Concepts, Issues and Measurement, D. Gillen, W.G. Morrison and C. Stewart, 2002. Estimating Air Travel Demand Elasticity, an IATA report produced by InterVISTAS in 2007. 17 July 2013 Page 131

Assessing Connectivity i 63 Figure 8-1 Own-Price Elasticities of Demand (Gillen et al., 2002) More Elastic Less Elastic -2-1.5-1 -0.5 0 Long-haul international business: -0.475-0.198-0.265 Long-haul international leisure: -1.7-1.04-0.56 Long-haul domestic business: -1.428-1.15-0.836 Long-haul domestic leisure: -1.228-1.104-0.787 Short-haul business: -0.783-0.595-0.7 Short-haul leisure: -1.743-1.520-1.288 Reproduced from: Air Travel Demand Elasticities: Concepts, Issues and Measurement, D. Gillen, W.G. Morrison and C. Stewart, 2002. Thus, competition in the aviation market can contribute to air service becoming more accessible and more affordable. As described in Chapter 4, this in turn can provide benefits to the wider economy (catalytic impacts): Trade in Services. The trade in services is about people. Face-to-face meetings play a crucial role in making sales and delivering services. The ability to rapidly and cost-effectively is important to many service industries. Much of the time, these functions cannot be replaced by teleconferencing or other forms of communication. Trade in Goods. As noted previously, although air cargo accounts for 0.5% of the volume of global trade shipments, it accounts for over 35% by value, meaning that air cargo is high value, often times perishable or time-sensitive. 63 Air transport not only supports the export of UK goods to overseas markets but also the supply of parts and machinery necessary for production processes in the UK. Tourism. The majority of tourists from other countries arrive in the UK by air. Affordability of air travel service and air connectivity are two critical elements in attracting tourists. Investment and Innovation. The contribution of affordable and accessible air connectivity may be less apparent than with trade and tourism. However, the research presented in Chapter 4 illustrates how connectivity contributes to investment and business location 63 17 July 2013 Page 132

Assessing Connectivity i 64 decisions. Clearly, air transport is not the only factor affecting investment and business locations, but poor or high cost connectivity has a proven detrimental impact. Long-Term Productivity. Again, the effect is less visible but there is research supporting the idea that aviation can contribute to the productivity of an economy. 8.3 Airport Competition Prior to deregulation, airports were seen as, and generally operated as, monopoly providers of services to both airlines and passengers. Airports were not perceived as being subject to competitive forces. The commonly held view was that there was little an airport could do to increase demand for its services or divert demand from other airports. However, as a result of deregulation, airlines have become much freer to operate out of any airport of their choosing. Deregulation was critical in the development of low cost carriers (LCCs), who often operate out of secondary airports with lower costs and no congestion, challenging the notion that airports were absolute monopolies. Today, there are a number of ways in which airports can potentially compete with each other: 64 Competition for a shared local market. Where airports are located in close proximity of each other, they compete for both passengers and air service. Many cities have two or more airports through which passengers can access air service. For example: Heathrow, Stansted, Gatwick, London City and Luton at London;; Charles de Gaulle and Orly at Paris;; JFK, Newark and LaGuardia at New York. In many cases, the airports do not all serve the same routes, however, there can be overlap between the airports. For example, four out of the five London airports mentioned have direct service to Paris (as of April 2013). Competition for connecting traffic. Passengers (and sometimes airlines) can switch to alternative connecting hubs. For almost all connecting traffic there are alternative connecting points. A passenger travelling from Aberdeen to Rome can get there via London, Paris, Amsterdam, and so forth. Connecting traffic can easily shift from one airport to another if cheaper, faster and/or more convenient connections become available. Competition for cargo traffic. Cargo is highly price sensitive and can switch to alternative routing or other modes. E.g., if cargo rates in Amsterdam are high, the cargo can be flown to Brussels and trucked to its final destination. Destination competition. Airports have a role in competing for destination traffic, as they are part of the overall tourism package offered by a destination. The quality, cost and scope of service offered at an airport impacts on the overall attractiveness of a destination. As the scope and frequency of air service to and from an airport increases, so does the overall attractiveness of the destination served by the airport The dynamics of airport competition are closely linked with those of airline competition. In a situation where two airports have overlapping catchment areas, the airlines at each of the airports will compete with each other for the same passengers. For example, easyjet at Gatwick competes with British Airways at Heathrow for some passengers in the London region on those routes that both carriers serve. However, these same airports will also compete with 64 Kincaid, I. and Tretheway, M. eds: Forsyth, Gillen, Ashgate publishing, 2010. 17 July 2013 Page 133

Assessing Connectivity i 65 each other to attract new air services to their airports (or retain existing ones). 65 For example, Heathrow and Gatwick will compete with each other for new long haul services from Asia. This competition dynamic is good for consumers, providing a greater choice of routes and ensuring competitive prices (air fares). However, this competition is only truly effective if there is a reasonably level playing field between the competing airports. If one airport has a dominant position then the competition effects are weakened (this is discussed further below). 8.4 Empirical Evidence on Airport Competition Dynamics A number of studies have examined various areas of airport competition dynamics and concludes with their implications for the London market. 8.4.1 Airport Choice Behaviour A considerable body of research has examined the factors affecting airport choice in markets served by more than one airport. For example, the New York market, San Francisco/Oakland and the London market. This research has used forms of discrete choice models, where the ice of airport is a function of factors such as distance to the airport, air fares, frequency, availability of direct service, etc. The models are estimated using either survey data (Stated Preference) or using actual passenger data (Reveled Preference). Examples of this research include: Hess, S. and Polak, J.W. (2006), Airport, airline and access mode choice in the San Francisco Bay area, Papers in Regional Science, 85 (4), pp. 543 567. Luken B. and Garrow, L. (2011), Multiairport Choice Models for the New York Metropolitan Area: Application Based on Ticketing Data, Transportation Research Record: Journal of the Transportation Research Board, Vol. 2206, pp. 24-31. Hess, S. and Polak, J.W. (2006), Exploring the potential for cross-nesting structures in airport-choice analysis: A case-study of the Greater London area. Transportation Research Part E: Logistics and Transportation Review, 42 (2). pp. 63-81. The CAA and NATS used a similar methodology in the Second Passenger Access Model (SPAM) UK air traffic forecasting model. A typical result from these types of studies is that passengers are willing to trade off air fare, frequency, access time and other factors in their selection of airport. This is evidence of airport competition in some markets with shared catchment areas. For example, airports (and the airlines they serve) can attract more passengers by lowering their fees. 65 This is illustrated by the amount of air service development work carried out by most airports, including global and regional Routes conferences attended by airports and airlines. 17 July 2013 Page 134

Assessing Connectivity i 66 8.4.2 Hub Premium at Dominant Airports There is considerable evidence (largely from the U.S.), that dominant Following deregulation in 1978 in the U.S., hub and spoke networks emerged as the preferred network structure for U.S. carriers. Research on fare data found that fares were higher for trips that originated from concentrated hub airports. For example, a 1990 study by the U.S. General Accounting Office, found that yields were 27% higher at 15 hub airports dominated by one or two carrier than at airports with no significant airline concentration. 66 However, some of these early findings were criticised for not controlling for other market characteristics that might explain why hubs would naturally have higher fares, such as traffic mix, carrier identify and unit-cost differences. To address this, researchers began to estimate statistical regression models, which allowed for explanatory control variables that could separate out the effects of market characteristics from the hub dominance effect. While not the first researcher to undertake this type of analysis, Borenstein's 1989 paper is often cited. 67 He found that a carrier with a 50% market share at both endpoints of a route sustained a fare, on average, 12% higher than a carrier with only a 10% market share at each endpoint. Similar research by Morrison and Winston found that a 33% hub premium estimated using the U.S. GAO methodology was reduced to between 4% and 10%. 68 Therefore, despite refinements to the analysis, the research in the U.S. continued to find that there is a statistically significant effect of market concentration at hub airports on average air fares paid by consumers. There has been far less research of the hub premium in Europe, due in part to the lack of available fare data. However, one study did find that European carriers charged significant premium for direct flight from their hubs. 69 The magnitude of the premium was estimated to be 15% for carrier operating from their hubs compared with other carrier at the airport, controlling for other factors. 8.4.3 Impact of Competition on Fares There is considerable evidence that dominant airlines at hub airports are able to charge a exploiting their market position. Related to the hub premium, researchers have also examined the extent to which competition dynamics at or near to an airport can impact on fare levels. Again, this research is from the U.S. and much of it deals with the impact of Low Cost Carrier (LCC) competition. One of the most widely cited studies is Morrison (2001) which examined the impact of LCC entry (specifically entry by U.S. carrier Southwest Airlines, one earliest and most successful 66 U.S. General Accounting Office (1990), Airline Competition: Higher Fares and Reduced Competition at Concentrated Airports, 1990. 67 Hubs and High Fares: Dominance and Market Power in the U.S. Airline IndustryThe RAND Journal of Economics Vol. 20, No. 3 (Autumn, 1989), pp. 344-365. 68 Morrison, S. and Winston, C., The Evolution of the Airline Industry, 1995. 69 Lijesen, M., Rietveld, P., and Nijkamp, P. (2001), Hub premiums in European civil aviation Transport Policy, 8(3), 193-199. 17 July 2013 Page 135

Assessing Connectivity i 67 LCCs), on other routes from the same airport (referred to as "potential competition") and on competing parallel routes from nearby airports (referred to as "adjacent competition"). 70 Using regression analysis to control for other factors, the authors found that LCC presence as a potential competition on a route reduced fares by an average of 46% and that LCC presence on a competing parallel route as an adjacent competitor reduced average fares by between 15% and 26%, depending on route characteristics. Thus, LCC competition from a nearby airport can act as a competitive constraint on air fares at another airport. A study by NERA for BAA in 2006 found a similar effect in the London market. 71 Their research found that air fares on routes at Heathrow and Gatwick were impacted by the amount of LCCs operations on those same routes. As the volume of LCC operations on a route increased, the average fares at Heathrow and Gatwick declined. Chu et al. (2012) also examined airport competition, separating out the effect of LCC and non- LCC competition at U.S. airports. 72 The authors used fare data for around 2,000 U.S. domestic routes for the period 2003-06, controlling for other factors that might affect fares using regression analysis. The analysis showed that increased competition in adjacent markets within multi-airport metropolitan areas (measures in terms of the Hirschman-Herfindahl Index) 73 had a statistically significant impact on yields. In other words, competition from airlines at one airport could act as a competitive constraint (in terms of fare levels) on airlines at another adjacent airport. This effects was found for both LCC and non-lcc carriers, although there was evidence that LCC presence resulted in larger fare declines (the analysis only examined the impact of at-airport LCC competition and did not include variables related to LCC competition at adjacent airports). 8.4.4 Limitation of the existing studies Competition from airlines at one airport can act as a competitive constraint on airlines at another adjacent airport. We note that the empirical research to date, presented above, has limitations for quantitatively assessing the likely effect of increasing airport competition in the London market. Firstly, most of it is based on the U.S. domestic market and its applicability to the UK is problematic. Data is available that could be used to estimate European and potential UK specific effects. Secondly, none of the research addresses the specific question relevant to this discussion does multiairport competition lead to lower fares than single-airport markets? The research has been more focussed on LCC competition rather than airport competition dynamics. Those studies that found a large price reducing effect of airport competition did not identify whether the source of the fare difference was an LCC-competition effect versus and airport-competition effect. 70 Morrison, S. (2001),, Journal of Transport Economics and Policy, Volume 35, Part 2, May 2001. 71 BAA Response to CAA Policy Issues Consultation Paper BAA/Q5/100, March 2006. www.caa.co.uk/docs/5/ergdocs/dec05/baa.pdf. 72 Chu, W., Windle, R.J., and Hofer, C. (2012), Route competition in multi-airport cities: an analysis of US air fares, Transportation Journal 3 (51), pp. 265-288. 73 Hirschman-Herfindahl Index (HHI) is a standard measure of the degree of competition in a market. In this case, the HHI was the sum of the squared market shares of each carrier that operates on the airport-to-airport route. 17 July 2013 Page 136

Assessing Connectivity i 68 These issues could be addressed with new, additional analysis. One option would be to use U.S. fare data to develop analysis to answer questions around airport competition. Another option would be to use fare data for the UK and rest of Europe to produce an answer more tailored to the London market. 8.4.5 Conclusions on hub competition and air fares A number of conclusions can be drawn from the empirical research summarised above: There is evidence that competition exists between airports in the same region. However, the degree or effectiveness of this competition can be impacted by whether one of the airports and its carriers has a dominant position in the market (i.e., a large market share and access to a large share of slots at an airport). Competition from airlines at one airport can act as a competitive constraint on air fares at an adjacent airport. The implications for the Commission is that great consideration should be given to options which enhance the competitive dynamics of the UK aviation market this competition will ensure route development best meets the needs of the market and foster competitive pricing due to airport and airline competition. Options which only enhance the competitive position of certain players will ultimately be detrimental to airport competition in London. 8.5 Airport Competition in the London Market In March 2009, the UK Competition Commission (CC) ordered BAA to sell both Gatwick and Stansted (as well as either Edinburgh or Glasgow). 74 Its reasoning for the break-up of the BAA London airports was that common ownership of the three London airports was preventing competition between them and was distorting capacity development. In the the break-up of BAA would bring about substantial benefits for passengers and airlines, possibly including lower prices, improved service levels and more efficient investment in response to customer needs. The break-up of the BAA London monopoly was completed in 2013 following the sale of Gatwick in December of 2009 and the sale of Stansted in January 2013. However, the CC acknowledged that even with the break-up of BAA, competition in the London market would be constrained, noting: continue to have substantial market power even after it no longer owns either Gatwick or Stanste 75 -East, and indeed 76 74 Competition Commission News Release: BAA Ordered to Sell Three Airports, 19 March 2009. 75 Ibid., page 2. 76 Ibid., page 4. 17 July 2013 Page 137

Assessing Connectivity i 69 constr 77 The CC recognised that the sale of the BAA London airports was only the beginning of the process to introduce greater competition to the London airport market. It also pointed to the need for capacity development to enhance competition between the London airports. Research undertaken by the CC supports the potential for airport competition and the link with airport capacity. The CC found a significant degree of competition between some non-baa airports in the UK, such as: 78 Birmingham International Airport and East Midlands Airport;; Belfast City Airport and Belfast International Airport;; Cardiff International Airport, Bristol International Airport and Exeter International Airport;; Liverpool John Lennon Airport, Manchester Airport and Leeds Bradford International Airport;; and London Luton Airport and Stansted, in the past when there was spare capacity at those airports. The CC saw evidence of declining yields from airport charges at regional airports, switching of passengers between pairs of regional airports and some switching by airlines. It found evidence of competition between airports for new routes and competition on service. The CC also found that such competition was generally strongest between airports with spare capacity or capacity that can readily be expanded. The CC conclusions regarding the continued market power of Heathrow and the need for additional capacity in the London market has clear implications for the It is our opinion that adding additional capacity at Heathrow will ket dominance and weaken the competitive constraints on the airport. It will ensure that airport and bring a halt to the opening up of competition that the CC has started. However, adding capacity to another London airport, and Gatwick is the most obvious candidate, would enhance the competitive dynamics within London. The additional capacity would act to spur competition between both Heathrow and Gatwick (and other London airports) who would seek to attract new carriers and retain existing ones. Adding additional capacity at Heathrow will only strengthen dominance and halt to the opening up of competition that the Competition Commission has started 77 Ibid., page 4. 78 Competition Commission, BAA airports market investigation: A report on the supply of airport services by BAA in the UK, 19 March 2009. 17 July 2013 Page 138

Assessing Connectivity i 70 8.6 The Airline Competition Link to Airport Competition There is also an airline competition link. LHR is currently dominated by one carrier and its alliance partners. Figure 8-2 shows the number of weekly air transport movements (slots) by top 10 carriers serving Heathrow airport, as well as percentages of total weekly air transport movements at Heathrow for the summer of 2013. Figure 8-2 Slot Allocation at Heathrow based on the Number of Air Transport Movements per Week Summer 2013 Carrier Number of Slots % of Total Slots 1. British Airways 4,825 50.6% 2. Lufthansa 510 5.4% 3. Virgin Atlantic 494 5.2% 4. Aer Lingus 330 3.5% 5. SAS Scandinavian 272 2.9% 6. United Airlines 252 2.6% 7. American Airlines 210 2.2% 8. KLM/ Delta Airlines 196 2.1% 9. Air Canada / Iberia / Swiss 168 / 168 / 169 1.8% / 1.8% / 1.8% 10. Air France/ Delta Airlines 140 1.5% 11. Other carriers 1,797 18.9% Total 9,530 100.0% Source: Airport Coordination Limited, Heathrow Airport Summer 2013 Start of Season Report. Note: Percent values may not add to 100% due to rounding. British Airways controls over 50% of slots at Heathrow, a number which increased substantially after the takeover of BMI by British Airways completed in April 2012. Prior to the takeover of BMI, British Airways accounted for 44% of slots at Heathrow, meaning that the takeover of BMI resulted in a net 7% increase in the number of slots controlled by British Airways. British Airways controls over 50% of slots at Heathrow. Oneworld controls 61%. More importantly, the oneworld air carriers control 61% of slots at Heathrow. 79 If a new runway is built at Heathrow, and if normal slot allocation rules are followed, then, after allocation of some slots to new entrant carriers, a proportionate share of the new slots would accrue to oneworld carriers. This would reinforce the share of the dominant carrier and its partners. This 79 Why Delta and Skyteam need the Virgin Atlantic partnership and Heathrow slots Skift.com. Underlying source of data is Airport Coordination Ltd. 17 July 2013 Page 139

Assessing Connectivity i 71 seems to undermine the intent of the BAA divestiture policy, which was intended to increase competition in the London and UK air transport sector, not reinforce hub dominance. 8.7 Enhancing Competition in the London Market: The Case of Moscow A recent decision by the UK CAA illustrates how competition between airports (and the airlines at those airports) can be enhanced. The current air service bilateral with Russia designates two r of BMI, the two selected carriers were British Airway and BMI, both of which operated from Heathrow. 80 Following the termination of BMI services by British Airways after the takeover, the UK CAA was required to make a new determination in 2012 on designated UK carriers. 81 The CAA considered applications from three carriers: British Airways, which already operated 21 flights per week to Moscow (Domodedovo International Airport);; Virgin Atlantic, proposing to operate 14 flights per week to Moscow from Heathrow. EasyJet, proposing to operating 14 flights per week to Moscow from Gatwick. maintain its services and to award the second designation to easyjet operating from Gatwick. In awarding the second designation to easyjet rather than Virgin, the UK CAA made clear that this was done on the basis of maximising the competition effects: The CAA recognises the importance of airport competition. market, has the potential to deliver the greatest dynamic fare benefits, in particular by encouraging the removal of fare restrictions applied by incumbent carriers. The CAA has attached significant weight to the expectation of dynamic fare benefits in reaching its decision. 82 The CAA also recognised the strong competition potential between Gatwick and Heathrow: the CAA considers that Gatwick and Heathrow can be considered to be in the same market, and therefore that there will be competition between services from the two airports. The CAA recognised the validity of comparisons between the Moscow route and Tel Aviv where there was evidence that a service operated from another London airport had posed a competitive constraint on a BA Heathrow service. 83 80 In addition, Aeroflot and Transaero Airlines were the designated Russian carriers. 81 n Scarce Capacity Allocation Certificates 82 Ibid. Page 32. 83 Ibid. Page 32. Note: easyjet also operates a service to Tel Aviv from Luton Airport. 17 July 2013 Page 140

Assessing Connectivity i 72 This decision indicates that the CAA, like the CC, recognises the importance of airport competition in maximising social welfare. 8.8 Conclusions Regarding Competition The UK government has historically and recently placed great weight on competition in the air transport sector. It privatised both the national airline and the airport system. More recently BAA was required to divest itself of LGW, STN and one of the Scottish airports in order to enhance competition in city markets with multiple airports. Studies have shown that increased competition has created significant benefits for travellers in terms of lower fares, greater choice and increased quality of service (e.g., higher frequency). While much of the attention and research has been on the fare impacts of competition, it is also true that competition spurs innovation and ensures that there is a dynamic response to the changing needs of consumers. Airports compete with each other in a number of dimensions, including competition for the shared local market, for connecting passengers, for air cargo traffic with destination competition. There is also an airline competition link of the potential decision on adding airport capacity in London. Because one carrier and its alliance partners control 61% of the slots at LHR, adding capacity there could reinforce hub dominance rather than enhance competition. This would seem to counteract the previous decision of government to require airport divestiture in order to enhance airport and airline competition. The recent CAA decision on the carrier designations of Moscow routes recognised the consumer benefits of airport competition, particularly between Gatwick and Heathrow. There are a number of studies that have documented the fare increasing effect of hub dominance. Thus, any policy on adding airport capacity should be guided to choices which enhance competition rather than reinforce existing hub dominance. 17 July 2013 Page 141

Assessing Connectivity i 73 9 Overall Conclusions and Next Steps There are a number of key points that can be drawn from the analysis in this report: Connectivity is Not the same as Connecting Traffic Connectivity is fundamentally about UK access to markets and regions. Ensuring that the UK is effectively and affordably connected to world markets and destinations should be the. Connectivity should not be confused with connecting traffic. Analysis of connectivity is more vital than assessing how to maximise the size of a mega-hub for a dominant carrier and its alliances, with large flows of international connecting passengers. Connectivity is not simply a matter of the number of routes or number of frequencies operated from an airport or country. It also involves the price of access. A country or region that has expensive connections to other parts of the world will be a less desirable place to do business and will have lower national productivity than a country with affordable access to a broad range of markets, especially the fastest growing markets. Connectivity Contributes to the UK Economy The development of air connectivity is important for the UK economy as a whole, not just the aviation industry. In economic terms, air travel is a factor of production for another activity a means to an end. In order for these other needs to be met effectively, air travel should be convenient, available and affordable. In other words, aviation connectivity facilitates the growth and development of many other sectors of the economy. This sometimes referred to as catalytic impacts or wider economic benefits. There are a number of ways in which aviation connectivity can contribute to the wide economy. These include: trade in services;; trade in goods;; tourism;; business investment and innovation;; and productivity. Domestic Connectivity Requires Careful Evaluation Much has been made of the idea that capacity constraints at Heathrow have squeezed out UK domestic routes. There may be some of truth to this. However, caution is urged in interpreting the limited domestic connections of Heathrow (and the other London airports). Connections to many points in the UK may not be viable for air carriers due to the short distances involved and the availability of effective alternatives (road and rail). In other words, some of the domestic connectivity is being provided by other modes which are more suited to the distances and passenger volumes involved. In fact, 60% of the UK population is within three hours driving time of London Airports and a full 80% within a four hour drive. Road and rail access to London airports may be a better form of connectivity for outlying communities than small aircraft and higher fare connecting flights to long haul services at CDG and AMS. Further, CDG and AMS themselves experience the same phenomena. 17 July 2013 Page 142

Assessing Connectivity i 74 E.g., many of their outlying communities in northern France are connected to London, but not to CDG. Heathrow may not be losing out to other European hubs any more than the European hubs are losing out to Heathrow in the other direction, and adding capacity at Heathrow will not necessarily result in service to Birmingham, Bristol, etc. London is the World Largest Air Market As documented in Chapter 2, the combined passenger traffic at the five main London airports significantly exceeds that of any other city in the world (the next largest is New York, followed by Atlanta, Tokyo, Paris and Beijing). The combined total of the top three airports (Heathrow, Gatwick and Stansted) is still larger than New York. Remarkably, the vast majority of this traffic (approximately 87%) is O/D traffic not connecting traffic. Thus, the London market is capable of sustaining multiple airports and well positioned to support two or more gateway airports. There are Limits to the Benefits of Connectivity at a Single Airport There are both supply and demand reasons why the gains from connectivity at a single airport are not limitless. In the parlance of economics, there are diminishing returns to connectivity at any single airport. There are a number of reasons for this: The S-curve effect. The S-curve effect is a well-established phenomenon, which has one of the characteristics that as carriers with high frequency shares capture a declining incremental share of the traffic as they increase frequencies. Diminishing returns to destinations in a region. Once an airport starts serving a region of the world, service to additional destinations in that regions have a diminishing benefit to the economy. Supply side limits to airport connectivity. The total capacity of an airport is limited by maximum aircraft size that can be support on the routes that it serves and the exponential increase in the complexity of operating an airport with a large number of runways. Industry The aviation ind capacity based on the current status quo and the benefits to consumers. In this report, a number of emerging industry trends have been identified such as long haul Low Cost Carriers (LCCs), partnerships between LCCs and network carriers, and the constant evolution of airline alliances. All of these trends could substantially change the aviation industry structure and future infrastructure requirements. Furthermore, there may be other unanticipated trends and other events that will also impact on the aviation industry. The important consideration is that the chosen airport infrastructure solution is one that is robust and flexible to future changes in the industry and in aviation demand. This robustness comes about not just from increased capacity but also by fostering competition. 17 July 2013 Page 143

Assessing Connectivity i 75 These competition dynamics will lead to competitive pricing, will spur innovation and will ensure that Lo benefits for consumers and ultimately the wider society. Airport Competition Driving More Affordable Air Transport Access is an Important Part of Connectivity Great weight should be given to options which enhance the competitive dynamics of the UK aviation market this competition will ensure route development best meets the needs of the market and foster competitive pricing due to airport and airline competition. Options which only enhance the competitive position of certain players will ultimately be detrimental to airport competition in London. For example, there is considerable evidence prem premiums can be reduced or eliminated by competition from other airports. It is Possible to Sustain a Two Gateway Airport System in London Analysis undertaken by InterVISTAS demonstrates that it is feasible for the London market to support two competing airport gateways. Heathrow and Gatwick operating as independent, competing gateway airports have the potential to offer similar levels of connectivity to a mega-hub at Heathrow and induce higher not lower levels of connecting traffic in the London market. Expanding Capacity at Gatwick Rather than Heathrow Will Bring Greater Benefits for the UK Economy An additional runway at Gatwick has the potential to offer similar connectivity benefits to that of another runway at Heathrow. However, it also has the substantial benefit of enhancing the competition dynamics of the London market. airport was designed to enhanced competition in the London airport market. However, even with the break-up, the Competition Commission recognised that Heathrow would still have substantial market power and that capacity constraints were restricting the further development of competition in the London market. While Important, Connectivity is Not the Only Evaluation Criteria The assessment of capacity options by the Commission needs to make connectivity a key part of the evaluation criteria. And in evaluating connectivity, consideration should be given to economic benefits it provides, the limited to connectivity at one airport and the need for competitive and low cost connectivity. However, other factors also need to be evaluated including local environment impacts, particularly noise, and other quality-of-life impacts. These issues are documented in separate report submitted by GAL. 17 July 2013 Page 144

Assessing Connectivity i 76 9.1 Next Steps air connectivity. However, there are a number of areas of further research which will be provided in future submissions to the Commission, including: Impact of Airport Competition. Most of the research cited in Chapter 8 is based on U.S. data. We intend to obtain data on the UK and Europe to further research and quantify the impact of airport competition. Measuring and Evaluating Connectivity. We will examine additional methods and measures of connectivity of possible value to this debate. Limits to Connectivity. We intend to conduct further empirical research on the limits to airport connectivity. Network Modeling of Future Runway Scenarios. The modeling described in Chapter 7 will be further enhanced and deepened to examine the connectivity implications of the runway options. 17 July 2013 Page 145

Assessing Connectivity i 77 Appendix A: Responding to the 17 July 2013 a dual hub or dual airport system is not feasible for the London market and therefore additional capacity should only be provided at Heathrow (or Heathrow should be replaced by a new hub airport). The report contains a number of inaccuracies and omissions which are addressed below. The Issue is Airport Capacity Not Hubs The Heathrow report argues that the expansion of Heathrow is required to ensure that the UK has a hub airport to rival the likes of Paris, Amsterdam, Frankfurt or Dubai. However, the geographic location of London means that Heathrow never has been and will likely never be a traditional hub. Hub airports are characterised by a large proportion of connecting traffic in combination with origin/destination traffic, resulting in higher levels of air service than can be sustained just by traffic is connecting traffic, which is considerably lower than classic hubs such as Atlanta, Dubai and Frankfurt, which have 50% or higher connecting traffic. Furthermore, current trends militate against Heathrow becoming a major hub in the future: hub busting aircraft technology, such as the Boeing 787 the Airbus A350, mean that more passengers will travel direct to their destinations without the need to transfer through hubs. This may reduce the availability of transfer traffic in transfer strongholds such as Europe-North America. For example, a passenger in Hamburg might currently choose to connect at Heathrow in order to fly to Dallas. In the future, they might have access to direct services operated using B787s. London is poorly positioned to compete for fast growing, emerging markets such as Europe-Asia, or Europe-Africa. Heathrow (or any other London airport) makes an unattractive connecting point for these traffic flows as it would require most passengers in Europe to travel in the wrong direction, greatly increasing travel times. These flows are better served by Frankfurt, Istanbul or Dubai. London will always attract some connecting traffic due to the wide range of services offered and the need for domestic connections. However, it does not need a mega-hub in order to maintain high levels of connectivity. London is the largest air market in the world and an important global destination, which is best served a number of competing airports. The Importance of Airport Competition is Ignored As we have argued in this report, the development of a multiple gateway airport system serving London will enhance the competitive dynamics of the UK aviation market. This competition will ensure route development best meets the needs of the market and foster competitive pricing due to airport and airline competition. Capacity options that only enhance the hub dominance of Heathrow will ultimately be detrimental to airport competition in London. was designed to enhanced competition in the London airport market. However, even with the Page 146

Assessing Connectivity i 78 break-up, the Competition Commission recognised that Heathrow would still have substantial market power and that capacity constraints were restricting further development of competition in the London market. The Description of Transfer Traffic in the London Market is Simplistic and Ignores Important Details The Heathrow report argues that a two hub system would split the feed from short haul routes onto long haul routes weakening the financial position of some short haul routes and sustainability of marginal long haul routes. By the same logic, it would be more effective if there were only one carrier (or one alliance group) operated on these routes allowing them to consolidate traffic further. However, such an outcome would be considered anti-competitive and would be subject to review by competition authorities in many countries. For the most part, this does not happen and airlines are able to operate and compete effectively while splitting the traffic. Consider that airlines mostly provide feed for their own services or those of their alliance or code-share partners. For example, before its takeover by British Airways in 2012, BMI was providing domestic and international feed traffic largely to its Star Alliance partners. Similarly, and provide very little to British Airways. Ticket booking data shows that in 2012, 76% of connecting passengers at LHR were making oneworld to oneworld connections (British Airways is a member of the oneworld alliance) and another 6% were making other within-alliance connections (Star to Star or SkyTeam to SkyTeam). 84 The vast majority of connections at Heathrow are within-alliance and most of those are for the oneworld alliance. Heathrow is not a big neutral connecting gateway. It is a dominated hub that largely facilitates connections Gatwick developing as a gateway airport might see one or more alliances move operations to that airport. It is unlikely that an airline or alliance will split operations between the two airports. As a result, the airline economics of feed traffic will be largely unaffected. However, it will allow airlines to develop services at an airport not dominated by one carrier and one alliance. Furthermore, a second major gateway would increase competition for feed traffic, stimulating demand, lowering fares and providing greater passenger benefits. It should also be noted that the nature of connecting operations are changing. There is an increasing use of interline and code-share agreements between low cost carriers and long-haul network airlines. This is becoming an increasingly important area of growth in the aviation market. Carriers such as WestJet in Canada, JetBlue in the U.S., and Virgin Australia and Jetstar in Australia have entered into codeshare and interline agreements with network carriers. For example, JetBlue has a codeshare with Lufthansa;; Jetstar codeshares not only with its parent company, Qantas, but also with Japan Airlines and American Airlines (and interlines with 25 other airlines);; Virgin Australia codeshares with Etihad. These arrangements enhance the profitability and network reach of the carriers without major changes to their business models, and enhance the connecting options for customers. Etihad Airways, which is not part 84 Diio FMg database for full year 2012. Connections involving BMI were removed from the analysis due to their takeover by British Airways. 17 July 2013 Page 147

Assessing Connectivity i 79 of any airline alliance, reports that 19% of its revenues in 2012 originated from airline partnerships. 85 Although there are no such partnerships planned at the moment, it is y attractive to long haul carriers as a means of providing feed traffic. Gatwick is also developing innovative approaches to supporting connecting traffic at its airport. In May 2013, Gatwick started a pilot of its Gatwick Connect transfer product. Gatwick Connect will offer an improved service to passengers already self-connecting, by re-locating the checkin element of the current process. Passengers can collect their bags in the arrivals baggage reclaim hall, before immediately, in the reclaim area itself, checking-in and/or dropping their bag for the next stage of their journey. Passengers then go landside, but straight to security, bypassing traditional check-in/bag drop. The Gatwick Connect proposition is based on the ated by Milan- existing interline product, which handles 900,000 passengers per year. The Issue of UK Domestic Connectivity is Mis-stated It is argued that capacity constraints at Heathrow have squeezed out UK domestic routes. There is undoubtedly an element of truth to this. Short-haul domestic routes operated by smaller aircraft are likely to be less profitable than long haul routes operated by wide body aircraft. It is also argued that this has been to the benefit of hubs in mainland Europe which do have services to cities not served by London (e.g., Birmingham, Cardiff, Southampton, Liverpool, etc.). However, caution is urged in interpreting the limited domestic connections of Heathrow. Connections to many points in the UK may not be viable for air carriers due to the short distances involved and the availability of effective alternatives (road and rail). In other words, some of the domestic connectivity is being provided by other modes which are more suited to the distances and passenger volumes involved. The same phenomenon occurs in the rest of Europe. For example, Paris CDG is not connected by air to some points in France (and even elsewhere in Europe) because this connectivity is provided by road and rail. However, these same points may have air service to London because air is the most suitable option. Heathrow may not be losing out to other European hubs any more than the European hubs are losing out to Heathrow in the other direction, and adding capacity at Heathrow will not necessarily result in service to Birmingham, Bristol, etc. Past History from Gatwick is Not a Guide to the Future document previous failed attempts by British Airways to operate Gatwick as a second hub. We agree that a single airline or even a single alliance would be unlikely to make a success of split operation between two nearby airports. It is much more realistic to expect that certain airlines or possibly alliances would move wholesale to Gatwick. There is also the possibility of greater co-operation between LCCs and long-haul carriers to support connecting traffic as discussed above. 85 http://centreforaviation.com/analysis/japan-airlines-and-jetstar-japan-embrace-lcc-hybridity-codesharing---andreap-rewards-99499. 17 July 2013 Page 148

Assessing Connectivity i 80 The fact that airlines moved to Heathrow following EU-US Open Skies and are willing to pay large sums for slots at Heathrow is evidence of the market dominance that Heathrow enjoys. This dominance can be best addressed by allowing more effective competition from other London airports. In contrast, the fact that airlines could operate trans-atlantic services from Gatwick demonstrates that such routes are viable albeit potentially not with the same yield as those airlines can now secure at Heathrow. There is historical precedent for airports emerging as new major airports or gateways: Newark has become a major international gateway and airline hub despite being an airport with limited scheduled services and very little international service back in the 1980s. Having started as a domestic airport, Haneda Airport in Tokyo is now operating as an intercontinental hub alongside Narita Airport. In China, Guangzhou Baiyun International Airport was a limited domestic hub nearly 10 years ago, with almost no international traffic. Now it is emerging as an intercontinental gateway. Shenzhen International Airport is undergoing this transformation right now. In less than a decade, Domodedovo International Airport has become the largest airport serving Moscow, starting from a point where it carried less than 15% of the traffic to/from Moscow. New York is a Good Example of a Dual Airport System We are puzzled as to why Heathrow points to New York to illustrate why a dual airport system will not work. It illustrates how it can work. JFK has become a major hub for the oneworld alliance, and to a lesser extent Skyteam, while Newark has become a Star Alliance hub (there is some overlap between the hubs;; for example, Lufthansa, in the Star Alliance, flies to both airports). In addition, LCC JetBlue codeshares with both American and Lufthansa at JFK, an illustration of the LCC/network carrier connections that is emerging in the market. Heathrow states that New York has three home carriers and the UK only has one. 86 This ignores the fact that any EU carrier can operate from Heathrow to most destinations. The EU has sig 87 or open skies bilaterals with other countries which remove restrictions on carrier nationality provided they are within the EU. By the time any additional capacity becomes operational at Gatwick, these agreements will be even more wide-spread. It is highly conceivable that once additional capacity becomes available at Gatwick that a new UK-based (or partially UK-based) carrier will develop, either as -up of domestic services, partially ervice at Heathrow, illustrates the responsive dynamics of the airline industry in the UK. 86 The one airline being British Airways. This ignores easyjet, which is a larger airline than British Airways in terms of passengers carried. 87 A horizontal agreement is an agreement negotiated by the European Commission on behalf of the Member States, in order to bring all existing bilateral air services agreements between Member States and a given third country in line with Community law. 17 July 2013 Page 149

Assessing Connectivity i 81 The report also argues that New York is less well connected than Frankfurt or Atlanta due to its dual hub status. This is speculative at best. Market forces (and sometimes government policy) largely determine what routes and how many will be operated from an airport. The New York airports serve a different market to Atlanta and Frankfurt. Furthermore, one reason New York may have low connectivity to certain parts of the world (e.g., South America and Asia), is its geographic location. Located on the North East of the country, it is poorly positioned to attract North American connecting traffic, most of which would have to backhaul through New York, and even connections from Europe are better served by Miami. Because of their geographic locations, San Francisco and Los Angeles act as the major gateways to Asia (collecting domestic feed from the East of the U.S.) and Dallas and Miami serve South America. Being located on the edge of a continent, London is similarly challenged to attract large volumes of connecting traffic to certain markets, such as Asia. The Problems at Tokyo Were Due to Government Policy Not Dual Airports The experience of Haneda and Narita Airports in Tokyo is also offered up as another example of the failure of dual hubs. However, the problems at these airports were caused by government policy not the dual hub model. The Japanese government forced one airport to serve only domestic traffic and the other to serve international traffic, meaning that domesticinternational connections required the use of ground transport. As we state below, we do not view that air passenger connections facilitated by ground transport between two airports to be an effective business model. Now that the government has removed the restrictions on these airports, and Haneda has added a new runway, both airports are now offering competing international services. airport status is disingenuous. Firstly, it was the imposition of government policy that harmed airports, such as Incheon airport in Seoul, is due to rapid economic growth experienced in these countries, particularly set against the past 15 years of economic stagnation that Japan has suffered. The Dubai Example Is Not Relevant The delay in moving operations from Dubai international to Al Maktoum International Airport is not relevant to this debate. Dubai is primarily a connecting market the majority of its passenger traffic is connecting through the airport. It does not have the large O/D market that London does. London is primarily an O/D market with some connecting traffic. Split Hubs Are Not the Issue We do agree with Heathrow that an option to facilitate connecting traffic through a rail link between Heathrow and Gatwick is not realistic. The connection times would be highly uncompetitive with those offered at hubs elsewhere in Europe. Instead, we consider that a much more viable option is that Heathrow and Gatwick would be competing gateway airports on a level playing field, which would provide substantial benefits to passengers, airlines and the wider UK economy. 17 July 2013 Page 150

Assessing Connectivity i 82 The Analysis of Economic Benefits is Flawed and Simplistic Economics, it was claimed that lack of direct connections from Heathrow to emerging markets was costing the UK economy 1.2 billion to 1.6 billion of trade per annum, and that the claimed that 14 billion per annum in trade was being lost, climbing to 26 billion per annum by 2030. The report provides little information why the estimated lost trade has increased over tenfold since the 2011 study. More generally, we are concerned that analysis of economic benefits is flawed and simplistic. It appears to assume that the major factor preventing trade with other countries is lack of direct air service. Thus, introducing or expanding air service results in a massive jump in the volume of trade with these countries. 88 This is based, in part, on analysis of the correlation between the volume of trade between two countries and the number of flights per annum between those countries. 89 However, this analysis ignores two key issues: Size of the economy. A one of the factors affecting the volume of trade and the amount of air service between countries is the size of their economies. For example, the UK has more trade and direct air service with Germany than it does with Luxembourg, simply because Germany is a bigger economy with a bigger population. The supposed correlation between trade and air services may be largely the result of economic size. The analysis appears to ignore the two-way nature of the relationship, i.e., increased trade likely increases the demand for air travel, and that many other factors are required in order for trade to develop. Airlines do not operate routes to promote economic development;; they do so to make a profit. They look for opportunities where existing demand will support the flights offered and make them financially viable, if not immediately, then certainly within a relatively near-term planning horizon. t does recognise the causality issues (page 13) but the analysis do not try to control for this. connectivity. Greater connectivity will facilitate the development of enhanced levels of business does not positively contribute to the debate. The Economic Benefits of Connectivity Are Not Exclusive to Heathrow Regardless of the correct estimates for the trade and economic benefits associated with connectivity, we note that these are not specific to Heathrow. The lost trade documented in can be recovered by connectivity at other airports and not just Heathrow. For example, the Heathrow report identifies Indonesia and Vietnam as countries with whom direct air service would spur trade. Gatwick already services two points in Vietnam and in November 88 Missing Trade Opportunities: The Impact of n the UK Economy 89 Missing Trade Opportunities: The Impact of n the UK Economy Economics, November 2012, Pages 4-5. 17 July 2013 Page 151

Assessing Connectivity i 83 2013 will have service to the Indonesian capital. Direct air services from Gatwick will generate the same levels of economic benefit as equivalent services at Heathrow. Furthermore, a capacity solution that facilitates greater competition between airports could potentially result in greater benefits due to reduced travel costs for passengers and shippers. 17 July 2013 Page 152

Assessing Connectivity i 84 Appendix B: List of Abbreviations ACI ATAG BAA BMI BRIC CAA GAL IAG LCC OAG QSI Airport Council International Air Transport Action Group British Airport Authority Also known as British Midland Airways or British Midland International Brazil, Russia, India and China Civil Aviation Authority (UK) Gatwick Airport Limited International Airlines Group Low Cost Carrier Official Airline Guide Quality Service Index 17 July 2013 Page 153

Assessing Connectivity i 85 Appendix C: List of Airport Codes Airport Code AMS ATL CAN CDG DAL DFW DME DXB EWR GMP HKG HND HOU IAH ICN ITM JFK KHH KIX LAX LCY LGA LGW LHR LTN MIA NAY NRT OAK ONT Airport Name Amsterdam Airport Schiphol Atlanta Hartsfield-Jackson International Airport Guangzhou Baiyun International Airport Paris Charles de Gaulle Airport Dallas Love Field Dallas/Fort Worth International Airport Domodedovo International Airport Dubai International Airport Newark Liberty International Airport Gimpo International Airport Hong Kong International Airport Tokyo Haneda Airport William P. Hobby Airport George Bush Intercontinental Airport Incheon International Airport Osaka Itami International Airport John F. Kennedy International Airport Kaohsiung International Airport Kansai International Airport Los Angeles International Airport London City Airport LaGuardia Airport Gatwick Airport London Heathrow Airport London Luton Airport Miami International Airport Beijing Nanyuan Airport Narita International Airport Oakland International Airport La/Ontario International Airport 17 July 2013 Page 154

Assessing Connectivity i 86 Airport Code ORY PEK PVG SEN SFO SHA SJC SNA STN SVO TPE TSA VKO XIY Airport Name Paris Orly Airport Beijing Capital International Airport Shanghai Pudong International Airport London Southend Airport San Francisco International Airport Shanghai Hongqiao International Airport Norman Y. Mineta San Jose International Airport John Wayne Airport London Stansted Airport Sheremetyevo International Airport Taiwan Taoyuan International Airport Taipei Songshan Airport Vnukovo International Airport 17 July 2013 Page 155

Prepared by InterVISTAS Consulting Ltd. Suite 10, Regency House 2 Wood Street Queen Square Bath, UK BA1 2JQ Telephone: +44 2(0) 814 1835 Facsimile: +44(0) 1225 330 209 www.intervistas.com Page 156

Appendix 4 Prospects for Transfer Hub Airports Around London Prepared by Dr Richard de Neufville Page 157

PROSPECTS FOR TRANSFER HUB AIRPORTS AROUND LONDON A forward look into the Uncertain future Prepared by Dr. Richard de Neufville 1 1 Dr. de Neufville is the author of Airport Systems Planning, Design, and Management (with Dr. Amedeo Odoni, McGraw-Hill 2003, 2 nd ed. 2013) and 5 other related texts and many journal articles, particularly on the topic of the operation of multiple airports in a metropolitan region. For identification purposes, he is Professor of Engineering Systems and of Civil and Environmental Engineering, at the Massachusetts Institute of Technology (MIT), in Cambridge, MA, USA. However, he is not representing MIT. The opinions in this report represent his own judgment based on his years of experience. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 1 of 36 Page 158

PREFACE By Richard de Neufville As an expert on Airport Systems Planning, Design, and Management (and author of textbooks on the subject), Gatwick Airport Ltd invited me to advise on issues associated with the development of runway capacity in the United Kingdom. I have reviewed materials that have been issued by the Airports Commission, have had intensive conversations with Gatwick Airport, and have generally become acquainted with the current debate about the issues surrounding runway capacity in the United Kingdom. I have also drawn upon my 40 years of professional association with aviation colleagues and projects in England, including airline and airport consultancies, in particular with the BAA in connection with the development of Heathrow. My overall view is that the runway debate has become overly entangled in numbers of little meaning. Indeed, detailed debate about 20-year aviation forecasts appears to be a waste of time, when retrospective experience shows that we are lucky to get such estimates right within 20 or 30 per cent. Similarly, the notion of connectivity is so obviously subject to interpretation that arguments over its numbers seem out of place. My suggestion is that the runway discussion needs to take on board and give priority to some larger issues, among them the reality that the airport/airline industry is in the midst of convulsive organisational changes that, together with demographic and technological developments, are radically altering the future of aviation. This future is above all uncertain. Policies thus need to avoid over commitment to chancy futures, and to be flexible to enable desirable responses to the range of possible outcomes. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 2 of 36 Page 159

PROSPECTS FOR TRANSFER HUB AIRPORTS AROUND LONDON A forward look into the uncertain future Executive Summary This report presents a vision of the future of UK and European airport/airline operations over the coming generation, for the purpose of identifying the likely prospects for transfer hub airports around London at that time. The report has four parts: A. A sketch of the possible future of the UK and European airport/airline industry; B. A discussion of the factors that favour the development of effective transfer hub airports; C. Significant relevant ideas concerning the operation of multi-airport systems in a metropolitan area, and the ambiguous meanings of connectivity; and D. A consequent assessment of the prospects of London as a transfer hub. In this context it is useful to keep in mind that, in a competitive economy, the future of any airport is closely tied to decisions of the airlines that are generally free to decide the number and kind of operations they will place at airports. The future of airports has to consider the choices of airlines, and thus their needs and alternatives. It is thus proper to speak of the airport/airline industry. The vision of the future matters. The UK and European airport/airline industry is in the midst of major organisational, demographic, and technological shifts that will inevitably reshape the roles and functions of London airports. The fact is that Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 3 of 36 Page 160

the future of UK airport/airline operations over the coming generation is not going to be a simple forward extrapolation of the current situation. Thus: Organisationally, we can expect a reconfiguration of the industry. There will be a continuing consolidation as old-line airlines merge or otherwise disappear, and as new innovative airlines achieve further prominence. Overall, the industry is likely to converge toward more economical, costeffective procedures, and these would alter airport operations and business models. Demographically, the market for air transport is moving significantly and steadily towards Asia. This displacement favours the rise of transfer hub airports in Central Europe and the Middle East, away from London. Technologically, the new efficient long-range aircraft enable airlines to develop new route patterns that often change the flow of passengers and aircraft, and thus their use of airports. Airlines serving distant destinations will increasingly by-pass traditional transfer hubs in favour of alternative way stations. As a basis for understanding the possible implications of the future airport/airline industry for London airports, we first need a clear understanding of transfer hub airports. Most basically, we need to appreciate that an effective transfer hub airport requires both suitable physical attributes (location, capacity, and configuration of the property) and one or more airlines that are committed to providing transfer operations at that property. An effective transfer hub results from airport/airline cooperation. Hence, any meaningful discussion of transfer hubs must go well beyond a discussion of airport attributes; it needs to appreciate the requirements and business models of airlines that might offer transfer services. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 4 of 36 Page 161

An effective transfer hub airport should be: Central to one or more air transport markets (as London is to traffic between Europe and North America, but is not to traffic within continental Europe). Commercially competitive with alternative airports, taking into account the efficiency of airport operations, the fees assessed for the use of facilities, and government value-added, carbon-related, and other taxes such as the UK Air Passenger Duty. Able to ensure reliable operations, a feature associated both with prevailing good weather, and with the way the airport is designed and managed (unfortunately, London/Heathrow continues to face major issues in this regard). Second, to grasp the full implications of the future airport/airline industry, we also need to appreciate the way that groups of airports in a metropolitan area (the so- -rovide service to the region. Given available capacity, the natural tendency that results, in regions with the highest levels of locally oriented traffic, is for competitive airlines to cluster at different airports and to offer the region competitive destinations and prices. This array of services, distributed over a region, generally benefits aviation customers. Third, it is important to recognize that connectivity that is good for transfer passengers is often not good for local customers and vice versa. Airline schedules favourable to local customers, who may want to leave first thing in the morning, are often impractical for transfer customers who want to connect in the middle of the day. When we think about connectivity, we need to think about connectivity for whom? Is it connectivity for traffic from and to Britain? Or for foreigners just passing through? Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 5 of 36 Page 162

Combining the vision of the future UK and European airport/airline industry with the understanding of the requisites for an effective hub, the characteristics of multi-airport systems, and the implications for connectivity, the conclusions are that: The prospective evolution of the airport/airline industry works against London as the location of an effective transfer hub airport. Taken as a whole, the prospects favour competitive airports in continental Europe and the Middle East. - Stansted, might easily develop greater international roles as the emphasis on a single focal airport decreases. This shift might spread the benefits of connectivity over the region, much as has happened around New York. connectivity to the world via air transport. A greater emphasis on serving traffic originating in or destined to the London area (the complement of a reduced emphasis on favouring the convenience of travellers merely connectivity for UK traffic. Finally, we must all acknowledge that the future is uncertain. We do not know how the travelling public will act, cannot count on correctly anticipating how airlines will choose to compete, and definitely cannot control developments immediate needs, yet will not overly commit the future to situations that might not develop. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 6 of 36 Page 163

PROSPECTS FOR TRANSFER HUB AIRPORTS AROUND LONDON A forward look into the uncertain future A. Possible future of UK and European airport/airline industry A.1 The future of UK and European airport/airline operations over the coming generation is not going to be a simple forward extrapolation of the current situation: The industry is undergoing a profound, indeed convulsive, organisational shift. This reconfiguration is primarily a consequence of the economic deregulation of airlines and airports. Significant demographic and technological developments are also exerting a strong influence on the patterns of traffic flows and thus on the prospects of both airlines and airports. The state of the economy also affects the vitality of the airport/airline industry. However, by itself this has little impart on the configuration of the industry; it mostly advances or retards the evolutionary pattern. Economic Deregulation A.2 Economic deregulation is responsible for the convulsive changes now occurring in the air transport industry. To appreciate the effects, it is important to point out that the air transport industry used to be one of the most regulated industries in the world: airlines required special permission to offer new services, were not free to compete meaningfully on prices and quality of service, were mostly owned and managed by national governments, and acted monopolistically. Economic deregulation has largely removed these constraints, and thus unleashed a fierce spectrum of new competitors who are challenging conventional airlines and their practices on all fronts. New services are breaking monopolies, inefficient competitors have to reorganize, and, in general, the industry is in turmoil compared to the years before economic deregulation. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 7 of 36 Page 164

A.3 The consequences of the economic deregulation of the air transport industry stem from the interplay of competitive airlines, vying for passengers, and adjusting their bases of operation. This competitive economic struggle has universal attributes, and largely leads to similar results wherever it takes place. A.4 The United States deregulated its airlines in 1978, almost 20 years before Europe. The consequences of deregulation in America thus foreshadow the future of the UK and European airport/airline industry. Whereas the evolution in Europe will differ from that of North America, and the future is always uncertain, it may fairly be said that we can read the prospects for the European airport/airline industry in the tealeaves of the American experience. Lessons to be drawn from experience with deregulation A.5 The main lessons to be drawn from the US experience concern the: Rise of effective low-cost carriers as major airlines (e.g., Southwest is now the airline carrying the most passengers in the United States, more than any of the mega-airlines resulting from the recent spate of mergers); Consolidation of legacy airlines into mega-airlines (Delta took over Northwest, United swallowed Continental, and American is poised to absorb US Airways and each of these airlines is already an amalgam of repeated mergers since deregulation); Airline focus on transfer hub airports as a means to achieve economies of scale and scope (e.g., Delta at Atlanta, United at Chicago, American at Dallas/Fort Worth); Inconstancy of airline choice of transfer hub airports (e.g., Delta built up and abandoned Cincinnati; TWA disappeared so that St. Louis no longer was a transfer hub; and US Airways abandoned Pittsburgh as its hub in favour of Philadelphia); and Development of consolidated cargo carriers with their hubs (e.g., Fedex at Memphis and UPS at Louisville). Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 8 of 36 Page 165

A.6 In Europe, low-cost carriers (such as easyjet and Ryanair) have likewise been taking short-haul, price-sensitive traffic away from the European carriers (that is, the traditional national airlines), and forcing them to focus more on long-distance, inter-continental travel. At least one of these fast growing airlines is likely to grow to become one of the dominant carriers of domestic traffic within the European Union carriers of feeder traffic to their hubs operations. This pressure drives toward further reconfiguration of traffic patterns, routes and hub locations. A.7 Europe already is witnessing airline consolidation, as with: Air France taking over Air Inter and then KLM; Lufthansa effectively absorbing Swiss and Austrian; and The International Airlines Group, officially registered in Madrid (although headquartered in London), now combines British Airways, Iberia, and bmi and in 2013 took over Vueling. We can expect that more marginal airlines (take your pick) will amalgamate with others by the time any new runway in the UK might open. As with the International Airlines Group, these airlines will increasingly be multinational, and will plan and execute their operations and strategies at a European rather than a national scale. A.8 Concurrently, various continental European airlines have been developing hubbing strategies: Lufthansa began with Frankfurt/International and moved on to Munich. It recently announced that it would establish a hub at the new Berlin/Brandenburg airport. 2 Earlier it opened a hub at Milan/Malpensa, which it then closed. On the face of it, Lufthansa definitely has a hub strategy but its details are in flux, as paragraph A.9 underlines. 2 The Berlin/Brandenburg airport is an extension of the Berlin/Schönefeld airport, and is to be named for former Berlin Mayor and German Chancellor Willy Brandt. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 9 of 36 Page 166

Air France, working closely with Aéroports de Paris, is now building transfer traffic around the new purpose-built Terminal Building at Paris/de Gaulle. TAP established a hub serving the traffic between Europe and Brazil. A.9 Complementarily, recent European experience demonstrates the inconstancy of airline choice of transfer hub airports. A number of previously significant European transfer hubs have changed their transfer activity significantly: Zürich lost much of its status as a hub, once the national airline (Swissair) went bankrupt and Lufthansa took over the reconstituted national airline (Swiss). Its satellite transfer terminal consequently was vastly unused for years and its capacity is still far ahead of its traffic. The experience of Milan/Malpensa airport emphasises the inconstancy of airline choices of hubs: Lufthansa chose to use this airport as a hub in 2008 but abandoned the project in 2011. A.10 We may also recognize the continued rise in consolidated cargo carriers (such as Fedex, UPS, and TNT). These airlines have their own hubbing operations, often at airports that have definitely not been traditional hubs or gateways. In Europe, for example: Köln/Bonn is a primary base for both Fedex and UPS; and Liège is a primary base for TNT. To put this into context, we need to recognise that Fedex is the most valuable airline in the world, with a market capitalisation 3 to 4 times that of Singapore Airlines or the International Airlines Group. 3 Also, Fedex and UPS each operate 3 As of the end of June 2013, the market value of Fedex was about 20 billion, compared to about 7 billion for Singapore Airlines and 5 billion for the International Airlines Group (that combines British Airways, Iberia, bmi and Vueling). The market capitalisation is the quotient of the share price times the number of shares. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 10 of 36 Page 167

among the largest fleets of commercial aircraft. 4 Compared to traditional airlines, specialised cargo carriers now increasingly dominate the transport of mail, express packages, and other airfreight. The increasing dominance of these airlines represents a further shift in air transport patterns. Demographic and Technological Developments A.11 A major demographic reality for world aviation today is the rise of Asian economies, notably associated with China and India. Whereas the greatest market for Europe over the last half-century has been across the North Atlantic, traffic East to Asia might well for Europe over the next halfcentury. Current best forecasts suggest only relatively modest traffic from China. However, given the size of the market, even a small shift in the Chinese propensity to visit Europe could strongly affect the size and the character of the traffic flows at European airports, particularly at transfer hub airports. A.12 To appreciate the effect of this new Asian traffic, we must take on board the idea that transfer hub airports provide waypoints between major regional sources and destinations of traffic. Traffic comes from one market, assembles and redistributes itself somewhere in the middle of its journey, and continues more or less in its original direction. Transfer hub airports are naturally best situated in the middle of their markets, as paragraph B.18 emphasises. Thus London provides a good position as regards traffic between Europe and North America. A.13 Correspondingly, the rise in traffic between Europe and East Asia will favour transfer airports between these geographic regions: 4 The reported number of aircraft in the fleet of any airline is difficult to pinpoint precisely, as it depends on how one counts the number aircraft leased or stored. As of the end of June 2013, Fedex actively operated about 360 aircraft, whereas British Airways operated about 250 and UPS about 235. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 11 of 36 Page 168

Dubai and other Gulf airports are thus well situated to serve this traffic and, in cooperation with Emirates and Etihad, are developing into world-class major transfer hubs serving not only Europe, but also North America as way stations to the East. These airport/airline combinations can be expected to continue to develop as major hubs benefitting from generously endowed airports with great capacity, powerful airlines with the latest equipment, and generally clear skies that facilitate reliable operations and connections. We can also speculate about the effect of the possible new major airport for Istanbul, for which the Turkish Government selected the contracting consortium in May 2013. If Turkey does indeed develop a 4-runway airport as announced, it would have a good prospect for becoming the counterpart to London on the eastern side of Europe. The existing Istanbul/Ataturk airport already serves as a hub connecting Europe to points East and South of Istanbul. In any event, there is a clear trend toward the development of new transfer hubs serving the Asian market, to the East of the UK, and to the detriment of London/Heathrow serving as a transfer hub for that traffic. A.14 The relevant technological development of interest concerns the longerdistance aircraft Airbus A-350 that first flew in June 2013. These aircraft can economically fly non-stop 7000 miles or more, the distance between North America and the Gulf. A.15 The effect of such longer distance aircraft will be to erode the locational advantages of airports closest to the edge of the oceans that separate continents. This is an extension of a long-term trend. At one time, transatlantic flights depended on having airfields as close as possible to the other continent, such as Gander in Canada, and Shannon and Prestwick in the British Isles. The development of modern jets shifted the goal posts and led to the development of London and New York as prime continental gateways. Now, along with Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 12 of 36 Page 169

development both of longer-range aircraft, and of the Open Skies agreement between the European Union and the United States, the goal posts are shifting once again. More and more direct flights connect Europe to Atlanta, Chicago, Dallas and Miami. These often overfly the British Isles and serve Frankfurt and Paris. A.16 The above means that London/Heathrow is bound to face increasingly effective competition for transfer traffic. The tide of history is not in its favour, as regards transfer traffic. Most immediately, the competition will come from continental transfer hubs, such as Amsterdam and Frankfurt, and most likely also Paris/de Gaulle. In a larger sense, all the European transfer hubs are encountering increased competition for the really long-distance traffic, such as traffic between North America and India, or Europe and Latin America. Airport/airline partners in the Gulf are now aggressively marketing in North America. As of June 2013, Gulf-based airline Emirates serves 8 destinations in North America, and Etihad 4. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 13 of 36 Page 170

B. Factors favouring effective transfer hub airports What is a transfer hub? B.1 People also often assume necessarily involves a large proportion of transfer passengers. Such is not the case transfer waypoints. We need to be careful in our concepts. Specifically, we need B.2 The textbook definition of a significant amount of traffic that uses the airport as a means to transfer between flights on their way to a distant, final destination. For instance, a passenger from Boston going to Delhi might fly through London/Heathrow as a means to connect to an onward flight to Delhi; this traveller is then a transfer passenger. Similarly, a parcel going from Washington to Rome might go to the UPS hub at Köln/Bonn, get sorted, and be sent on its way. 5 B.3 fined. It can be thought of in terms of the per cent of traffic or the number of passengers. The more common understanding focuses on the per cent of transfer traffic. For example, an iconic example of a transfer hub is Atlanta, at which about two-thirds of its passengers transfer between aircraft. 6 -- Worth, Detroit/Metro, and Houston/Bush -- have half or more of their traffic as transfers. B.4 The focus on the large share of transfer traffic as a way to identify a how the airport managers and airline managers think of the airport and its business. When transfers constitute 5 http://thenewlogistics.ups.com/grow/shipping-europe/ describes this UPS hub. 6 So much traffic routes through Atlanta, that travellers using it know the saying: Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 14 of 36 Page 171

the major traffic at the airport, both the airport and the airlines providing transfer services will do their best to ensure that this traffic gets priority, and they will organize the airport facilities and airline operations to serve this traffic smoothly and reliably (as paragraph B.11 stresses). This attention to transfers is salient because thoughtful management recognises that transfer traffic can easily go elsewhere. For example, the Boston traveller to Delhi has several choices besides connecting through London; she can, for example, connect via Frankfurt or fly to New York for a direct flight from America. In many ways, being a plies a state of mind toward the transfer clientele, both by the airport and the airline providing the transfer operations. What does it take to make a transfer hub effective and competitive? B.5 Airport/airline collaboration is a basic need. Airports that think of themselves as transfer hubs go to great lengths to facilitate the transfer traffic and to support the airline providing the transfer service. 7 They recognize that transfer traffic can go elsewhere, either because the airline may cease offering transfer operations, 8 or because the passengers find better transfer service through a competitive hub. 9 Physically, they will do their best to provide transfer passengers with easy movements between their aircraft, 10 and will create great runway capacity 11 to minimize aircraft delays and to allow airlines to schedule connecting flights close to each other in time. Operationally, transfer airports will do their best to keep their airport open, recognizing that their transfer airport is at the heart of the operations of their transfer airline disruptions at a transfer hub 7 Singapore offers an epitome of good service to transfer passengers. 8 As Swissair (and then Swiss) largely did at Zürich, US Airways at Pittsburgh, Delta at Cincinnati, and American at Raleigh-Durham. 9 For example, Frankfurt/International competes with London/Heathrow. 10 In this vein, Dallas/Fort Worth airport spent about $2 billion (about 1.3 billion) on its Skylink automated -trains to transport people between gates. 11 Dallas/Fort Worth uses 6 runways routinely; Atlanta 5, Frankfurt/International and Paris/de Gaulle each have 4. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 15 of 36 Page 172

B.6 they maintain great spare capacity to enable rapid, smooth, and reliable connections between aircraft. The iconic transfer airports invest in great runway capacity and use it to allow airlines to schedule departing flights shortly after arrivals, so that airline operations occur in intense waves of traffic (known as he UK) that occur several times a day. Correspondingly, the runways are not fully utilized between the banks this has the advantage of permitting the airline and the airport to recover from the range of events that disrupt planned operations, ranging from mechanical delays on aircraft to passing storms. B.7 An airline willing to provide transfer service is crucial to developing and maintaining a pattern of significant transfer traffic, on the order of 25% of total traffic or more. Transfer services are not inherent in the capacity or location of an airport, or the size of traffic base in the metropolitan area. Transfer traffic will only thrive if an airline 12 schedules its services to provide conveniently short connections between flights, offers attractive fares on these connections, and provides effective connecting services for passengers and bags. B.8 Without an airline that consciously wants to provide transfer service, an airport will not be an effective transfer hub. Paris/de Gaulle for example has not historically been a competitive transfer hub in Europe, because Air France did not traditionally scheduled its flights for this purpose although it has recently begun to do so. Conversely, the much smaller Lisbon has recently been a Portuguese TAP airline developed the strategy of providing such service between Europe and the range of major airports in Brazil. 12 An airline alliance can provide approximately equivalent services when it chooses to operate as a single airline through code sharing of flights and schedule coordination. Thus Lufthansa and United as members of Star alliance support the transfer operations at Frankfurt/International and at Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 16 of 36 Page 173

B.9 Just as airports depend on airlines to provide transfer services, airlines striving to provide competitive transfer services depend on the support of the airport to facilitate this traffic. An effective and competitive transfer hub requires sustained long-term, active collaboration between the airport and the airline or airline alliance providing the service. 13 What are the pre-requisites of a successful hub? B.10 A successful transfer hub should provide reliable, convenient, and competitive transfers at the centre of the market for the traffic and the airline it serves. To achieve these ends, the airport must have an airline interested in providing transfer service. Airports lose their status as transfer hubs when the airline providing these services ceases those operations as happened at Cincinnati, Pittsburgh, and St. Louis (see paragraph A.5) B.11 Reliability is an absolutely crucial element for transfer passengers. They want to get to their destinations. They do not want to be delayed, or stranded and have to camp out at some airport in a place they do not want to be. 14 13 From personal observation, it appears that British Airways and Heathrow Airport have not cooperated closely, certainly not to the degree that Atlanta Airport caters to Delta, that Dallas/Fort Worth collaborates with American Airlines, and Singapore Airport with Singapore Airlines. For example, while in the United States the airports and airports collaborate closely on the general and detailed design of terminals, the BAA repeatedly and deliberately kept British Airways at arms length during the design of Terminal 5 at Heathrow. 14 London Heathrow has had a really bad record in this respect witness the chaos due to snowstorms in December 2010, February 2012, and January 2013. Frankfurt/International, New York/Newark and New York/Kennedy have the resilience to cope reasonably with such events; they invest substantially in equipment and staff to deice aircraft and clear the runways, for example. The repeated lack of reliability prompts many travellers to avoid transferring through London whenever they can do so. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 17 of 36 Page 174

B.12 Reliability is also crucial to airlines operating transfer operations. The hub airport is at the centre of their operations when it fails to provide reliable service, it affects their entire operations, and may even shut down the airline. Thus London snowstorms can paralyse not only Heathrow as an airport, but also British Airways over its entire network, as the events of December 2010 so vividly demonstrated. B.13 Reliability stems principally from tthat is, of slack in the system so that it is possible to adjust schedules and operations easily and smoothly when there are mechanical, weather, or other inevitable, daily delays and hiccups in the system. Aircraft will be routinely delayed morning fog in Delhi, a mechanical issue in Boston and airlines need to be able to accommodate these schedule changes and add extra flights at various times in order to make up the schedule and avoid stranding connecting passengers. apacity to provide good, competitive service. B.14 Airports consistently operating at full capacity offer few possibilities to cope with even minor events. Simply closing a runway for half an hour to sweep off snow backs up flights that will be hard-pressed to find slots available at other times. Any airport policy to maximize the use of its runway assets which appears to make sense from a simple-minded economic perspective -- runs counter to the objective of promoting reliable transfers and running a efficient transfer hub. 15 is inherently anti-transfer. 15 London Heathrow airport routinely runs at close to 100% of its announced takeoffs and landings as defined either by the airport or by the air traffic control authorities (NATS Holdings, formerly the UK National Air Traffic Services). Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 18 of 36 Page 175

B.15 Other important factors promoting good reliability are: Good weather, to minimize the associated delays that disrupt the entire system. 16 Airport design that promotes short taxiing distances for aircraft as at Denver, and easy transfers of both passengers and their baggage. 17 Cooperative airport management and staff that will do their best to ensure smooth operations (as by clearing snow). B.16 Convenience is important because it reduces the stress and cost of the process. For example, passengers will not appreciate transfer processes that entail the waiting, delays, and stairs associated with bus services. Airlines are particularly sensitive to inconvenient taxiing circuits that magnify their operating costs. 18 From this perspective, the best design for efficient transfer hubs features staggered parallel runways, as at Denver, Berlin/Brandenburg, and Munich. B.17 Competitiveness is important because transfer traffic inherently has a choice. It does not want to be at a particular airport, it only desires to receive a service as a means to get to some distant destination. This means that transfer traffic assesses the convenience and reliability of an airport by comparison with other transfer airports. To be a successful transfer airport, the airport has to 16 One of the reasons American Airlines moved its base of operations from rth was to avoid the bad winter weather in Chicago. This move occurred shortly after the US deregulated its airline industry in 1978. Note that Dubai and other Gulf airports enjoy perennial clear skies. 17 Inappropriate designs of passenger buildings have example, the design of passenger buildings at Kansas City was a factor that impelled TWA to relocate its base of operations and its extensive transfer traffic DM2 billion (about 1 billion) Terminal 2 for Lufthansa was so inappropriate to transfer operations that Lufthansa refused to move into it, preferring to remain in the old facilities. 18 A major passenger aircraft costs about 50 a minute in direct, indirect, and opportunity costs. An extra 5 minutes of delays due to lengthy or circuitous taxiing routes thus costs about 250 per operation. Cumulating this over 400,000 annual operations at a major airport, these small delays could cost the airlines on the order of 100 million annually. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 19 of 36 Page 176

remain competitive with its rivals, near and far. Thus Dallas/Fort Worth compe London/Heathrow competes with Frankfurt and Dubai for traffic between India and North America. In this regard the comparatively very high levels of the UK Air Passenger Duty with standard rates up to 184 per person, and maximum rates of 376 19 -- handicap UK airports that compete for transfer traffic with Frankfurt, Paris or elsewhere. B.18 A transfer airport has to be at the centre of its market for transfers. This is to avoid the costs of roundabout travel, in transport and time, both to airlines and travellers. Thus Gulf airports provide good sites for transfers between North America and India, likewise Miami/International and Houston/Bush are good for transfer traffic between North to South America; Seoul/Incheon is a good from traffic between North America to East Asia; etc. B.19 The logic of successful hubs indicates that, with respect to the intra- European market, airports in the centre of this market (such as Frankfurt/International, Munich, and Paris/de Gaulle) will gain relative to those on the periphery (such as London/Heathrow). B.20 An airline willing to organize its operations and schedules around transfer service is crucial to making an airport a successful transfer hub. The physical infrastructure by itself is not sufficient to develop a hub. Paris/de Gaulle has not historically proven to be a transfer hub despite its great capacity Air France had not adopted this strategy in the past. Likewise, Milan/Malpensa has lost it role as a transfer hub over the years as Lufthansa lost interest and Alitalia drew substantial services from Milan to Rome. As this second case illustrates, 19 As published by HM Revenue & Customs, www.hmrc.gov.uk/rates/apd.htm Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 20 of 36 Page 177

airlines can change their business plans, and can decide where they wish to provide transfer operations. 20 20 Consider the case of Northwest Airlines: while operating a major transfer hub at Minneapolis/St. Paul, it developed a new hub at Detroit. Now that it is merged headquarters in Atlanta. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 21 of 36 Page 178

C. Relevant ideas: Multi-airport systems and connectivity C.1 Any discussion of the prospects for transfer hubs around London must refer to the issues concerning the prospects of all the airports in the region, that is, the multi-airport system for the metropolitan area. The discussion must also acknowledge the current UK discussion that emphasizes the notion of connectivity. This section deals with both issues. What is the role of multiple airports in terms of meeting demand? C.2 Multiple airports are a widespread, universal feature of the busiest centres of air travel in terms of originating traffic. There are now about 80 multi-airport systems around major cities. In addition to London, prominent examples include Chicago, Dallas/Fort Worth, Milan, Moscow, New York, Osaka, Paris, Rome, San Francisco, Tokyo, and Washington. 21 C.3 Multiple airports have a major role in meeting the demand for air travel in all metropolitan areas that are the most significant sources of traffic, that is, that have the greatest number of origin and destination air travellers. 22 Indeed, all 21 A widely accepted definition of a multi-airport system includes all the commercially significant airports serving a region regardless of their ownership or jurisdictional location. This definition excludes military airports (such as Andrews Air Force Base outside of Washington), and those with insignificant operations (such as Manston, Southeast of London). However it does include airports in different cities (Baltimore-Washington International is thus part of the Washington multi-airport system), and airports operated by competitive organizations (such as the 5 airports immediately around London: Gatwick, Heathrow, London City, Luton, and Stansted). 22 The number of origin and destination passengers is the total number less the number of transfer passengers. The ranking of metropolitan areas by the number of origin and destination travellers is much different than the ranking by the total number of passengers. Thus Atlanta, the busiest international airport in the world by total number of passengers, drops way down the list of airports ranked by the amount of local traffic. Only about a quarter of its traffic comes from or through on the way to somewhere else. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 22 of 36 Page 179

metropolitan areas above a minimum threshold of origin/destination traffic feature a multi-airport system. 23 See Table 1. C.4 Multi-airport systems fulfil several roles in terms of meeting demand and providing connectivity. These include: Providing capacity in terms of the number of runways; Dispersing capacity around a large metropolitan area, thus providing more convenient services to the locally oriented traffic; Enabling additional effective competition among airlines; and Providing bases for the start-up and development of innovative competitive services. The next paragraphs discuss each of these roles in turn. C.5 In a competitive economy, the distribution of traffic among the multiple airports in a region normally concentrates around particular markets. This concentration is in line with what occurs in others parts of the economy: or on, silver dealers in Chancery Lane, diamond dealers in Antwerp, and so on. This is a result of a reinforcing dynamic: traders want to be where the customers are; customers want to go to where there are the traders. The result is that the secondary airports in a multiairport system normally are less congested than the primary airport. Such is the case in London, for example: Stansted is less congested than Heathrow. Notice further that the concentration is around markets (finance, silver, diamonds, etc.). Thus airlines and types of traffic focus on specific airports: Stansted is the London home for the low-cost carrier Ryanair, and easyjet has established a main base at Gatwick. This phenomenon of concentration around markets supports and explains some of the important roles of multiple airports in a region. 23 This threshold currently stands at about 15 million originating (or 30 million origin and destination) passengers annually. This threshold has been rising over time in line with the growth in the average size of aircraft. A generation ago, the threshold was less than 10 million originating passengers annually. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 23 of 36 Page 180

Table 1. Metropolitan Regions Generating Over 15 Million Originations in 2010 Metropolitan Multi-airport Estimated Millions of Passengers Region System Total Originating London Yes 130 57 Tokyo Yes 94 34 New York Yes 101 33 Paris Yes 85 30 Los Angeles Yes 76 28 Beijing Yes 66 24 Shanghai Yes 57 24 Hong Kong Yes 70 23 Washington Yes 58 21 Chicago Yes 80 20 San Francisco Yes 54 19 Miami Yes 52 19 São Paulo Yes 48 18 Frankfurt Yes 55 17 Seoul Yes 44 17 Dallas/Fort Worth Yes 60 17 Moscow Yes 41 16 Istanbul Yes 36 16 Houston Yes 45 15 Rome Yes 39 15 Milan Yes 33 15 Source: de Neufville database. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 24 of 36 Page 181

C.6 Multiple airports in a region facilitate the provision of runway capacity. In general, the area around a busy airport becomes populated with both businesses and workers appreciating the convenience of easy access to the airport. Consequently, it can be problematic to add runways to a busy airport. Land acquisition is an obvious difficulty, and even when the airport owns the land required, environmental issues come into play. 24 In this situation, it is often easier to locate new runway capacity at some alternative site, as was done at Stansted, Paris/de Gaulle and Washington/Dulles. C.7 Multiple airports disperse capacity around a major metropolitan area, and thereby can provide more convenient services to the various regions. Stansted thus provides Cambridge with a range of convenient services that would otherwise take 2 to 3 hours to reach if travellers had to make their way to Heathrow or Gatwick. Similarly, the southern suburbs of Paris can appreciate the availability of Paris/Orly as an alternative that avoids an arduous trip through or around Paris to reach Paris/de Gaulle. C.8 Multiple airports can enable some forms of effective competition between airlines. Alternative secondary airports provide the possibility of major bases for competing airlines. They particularly provide effective shelters for innovative airlines seeking to establish themselves against entrenched major competitors that are in possession of the most desirable assets at a primary airport (such as Ryanair has developed in competition with major, national airlines through its use of such airports as London/Stansted, Brussels/Charleroi, Rome/Ciampino, and Stockholm/Skavska. Similarly, Norwegian Air Shuttle is now establishing itself as a low-cost provider of air transport to and from London, taking advantage of its access to Gatwick. Neither airline could have served London or competed 24 The case history of London/Heathrow to date -- in addition to the cases of Francisco/International - are good examples of the difficulties facing dominant airports as they seek to add runway capacity. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 25 of 36 Page 182

against the established local airline (British Airways) if they had had to acquire the rights (known as the leftover and thus the worse facilities. C.9 The secondary airports in a multi-airport system, being generally less crowded and thus anxious to develop airline clients, frequently provide the. As a general observation, many of the innovative forms of air transport services have started or built operations from secondary airports. This is true in particular for Ryanair (at London/Stansted, Frankfurt/Hahn, and many others), easyjet (its early experience at London/Luton and Liverpool and now at its main base at Gatwick), and Southwest in America (at Dallas/Love Field). 25 Connectivity C.10 Connectivity is a limited, ambiguous, potentially misleading and thus inherently controversial concept: It is conceptually limited because, when we frame the concept properly, it involves many subjective elements that cannot easily be combined and understood. It is analytically ambiguous because the widely used operational definition (the one used to develop a connectivity number) confuses important elements and leaves out many of the significant conceptual subtleties. Connectivity is potentially misleading because what is good connectivity for local, UK, passengers may be poor connectivity for transfer passengers and vice-versa. Moreover, the numerical definitions of connectivity do not distinguish between good service to the UK and good service to the foreigners passing through. 25 The development of JetBlue from its base at New York/Kennedy is exceptional. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 26 of 36 Page 183

C.11 All concepts of connectivity refer to the possibility to from one place to another. In practice, we must restrict this general concept by specifying how difficult, expensive and otherwise inconvenient it is to get from one spot to another. Indeed, as it is somehow possible to reach any airport from any other, we might say that every airport on the globe is universally connected. As this approach does not usefully reflect the concept how the accessibility of any location might vary, we need to limit the definition of connectivity to some notion of the ease of connecting from any location. An immediate way of defining the connectively of an airport or region is then to think of the number of other airports that can be reached by direct flights -- or perhaps by direct and one-stop flights. C.12 However, connectivity defined through the possibility of direct (or including one-stop) flights is not sufficient to provide a good measure. This is because the connection might be limited by many factors such as: Frequency of service (only one or two flights a week), Size of aircraft, Accessibility and the cost of seats (only business class, for example), and Airport served (are you really connected to Frankfurt by a flight to which is some 77 miles from the city?). C.13 Insightful concepts of connectivity thus should reflect not only the possibility of connections, but also their availability, quality, price, usefulness and so on. Such measures involve any number of subjective judgements and incompatible elements. They are thus conceptually fuzzy and not available in practice. C.14 In practice, the commonly cited measure is the Connectivity Index diffused by the International Air Transport Association (IATA). It has the operational merit of only being composed of elements that can be objectively counted. It thus has the obvious defect of omitting all the subjective indices of quality of service of interest to users. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 27 of 36 Page 184

C.15 The IATA Connectivity Index is analytically ambiguous because it conflates two important elements. To see this, consider its definition: IATA Connectivity Index = [flight frequency x seats per flight) x [other elements] 26 Notice that this measure implicitly assumes that 1 flight by a 500 seat aircraft (an A380, say) provides the same connectivity as 4 flights by 125 seat aircraft: (1 x 500 = 4 x 125). Airlines and passengers know that this assumption is false. Wherever possible, airlines compete on their frequency of service. Passengers know that more daily connections to any destination are more convenient; they facilitate scheduling for UK travellers and allow better connections for foreign transfer passengers. In short, the IATA Connectivity Index does not represent the concept fully. C.16 We should carefully note that the IATA Connectivity Index refers to the connectivity of the airport to other airports. It misses out completely on the fact that actual passengers are generally not close to the airport, but may be anywhere up to 2 or 3 hours away, as is the case for the UK Southeast. This distance to be overcome diminishes the quality of the connectivity. Rightfully, we ought to take this factor into account. Even if this is too difficult to do numerically, we should recognize that connectivity provided by multiple airports across the London region reduces the barriers to accessing airport services, and increases the connectivity for passengers. C.17 It is further important to recognize that connectivity has different meanings for locally based travellers starting or ending their trips in a region (the origin/destination passengers) and for those just passing through an airport (the transfer passengers). In general, local passengers like departures early in the morning and returns in the evening. This schedule often permits a businessperson and others to make a day trip conveniently, for example. 26 the destinat Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 28 of 36 Page 185

Contrarily, transfer passengers typically will have started their trips earlier in the day, and will prefer departures of their connecting flights toward the middle of the day. The point is that good connectivity from the perspective of the local passengers can be antagonistic to good connectivity for transfer passengers, and vice versa. 27 C.18 In sum, connectivity is ambiguous because what is good connectivity for local, UK, passengers may be poor connectively for transfer passengers and vice-versa. Moreover, the Connectivity Index does not distinguish between good service to the UK and good service to the foreigners passing through. Since the notion of connectivity has many limitations, and is thus so subject to interpretation, we may conclude that arguments over its numbers have to be treated with great caution. While the official UK discussion of runways has so far paid considerable importance on the issue of connectivity, and has obliged participants to address the topic carefully, a wider view might well conclude that the notion of connectivity so subject to interpretation should not be such an important consideration for the UK decision concerning investments in future runways. 27 For example, to Lisbon. As of Spring 2013, the earliest Lufthansa flight left at 11.05 in the morning, arriving in Lisbon at 13.05; and its latest direct return for the day left Lisbon at 14.15, right after lunch. This schedule provides good connectivity for transfer passengers such as passengers arriving in the morning from North America -- but makes it impossible for the Munich resident to take a day trip to Lisbon on his home-based airline. This connectivity is good for the outsiders, but poor for the residents. Not all connectivity is equal. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 29 of 36 Page 186

D. Prospects for transfer hub airports around London Prospects for London as a transfer hub D.1 At London/Heathrow, transfers account for less than a quarter of the total number of passengers, only 23% according to the consulting firm SH&E. Its share of transfers is much lower than those of its European competitors (according to SH&E, 28 in 2011 Amsterdam had 39% transfers, Frankfurt 52%, Madrid and Paris/de Gaulle each had 31%). Moreover, compared to the airports known as the leading transfer hubs, Heathrow has relatively little transfer traffic. Atransfers constitute well over 50%, and up to 70%, of the total traffic. London/Heathrow is quite far down the list in the league table of transfer airports. D.2 The starting point for any discussion is that London/Heathrow is primarily an airport that serves passengers originating from, or destined to London or the its fundamental character. Because London/Heathrow has such a high level of traffic it has recently ranked fourth in the world in terms of passengers served 29 its relatively low percentage of transfers does translate into a large number of transfers. So, viewed from the perspective of the number of transfers London/Heathrow is currently competitive with European counterparts. Overall, however, the position of is problematic. D.3 The demographic and technological prospects for the airport/airline industry work against London as the location of an effective transfer hub airport in the future. The rise in traffic oriented toward Asia favours airports eastwards of 28 Using the PaxIS (Passenger Information Services) database developed by the International Air Transport Association (IATA). 29 The leading airports in terms of the number of passengers have been Atlanta, Beijing, and Chicago. Heathrow bases its claim to be the busiest international airport on the fact that it has the most Beijing have far more passengers than London/Heathrow (about 90 and 79 million respectively compared to around 60 million for London), but serve large domestic hinterlands. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 30 of 36 Page 187

the centre of Europe, whether in Europe itself (as at an eventual new Istanbul airport) or at an airport in one of the Gulf States. Moreover, the development of economical longer-range aircraft (such as the Boeing 787 or the Airbus A-350) facilitates the use of continental airports for service to and from North America. Taken as a whole, the prospects favour competitive airports in Europe and the Middle East. D.4 Any discussion of the future of London/Heathrow as a transfer hub should recognize the key role of airlines in creating and sustaining a transfer hub. The existence of good facilities is not sufficient. Transfer hubs only exist if an airline is willing to create transfer operations sufficiently attractive to customers compared to the opportunities available to them at competitive airports (Frankfurt or Paris for instance). The transfer passengers have only a passing interest in the airport providing the service their interest is in the convenience of the connections and the reputation of the airline. D.5 The prospects for London/Heathrow as a transfer hub thus depend on the long-term plans of the International Airlines Group, the current owners of British Airways (and of Iberia, bmi and Vueling). Nobody knows what the long-term plans of this Group will turn out to be. What is clear is that the future of European airlines is uncertain. There will be further consolidations, and airlines will almost certainly become more multinational. It is also likely that airlines will shift their priorities as regards how they will operate and which airports they will emphasize for their hubs. The reality is that the future of London/Heathrow as a transfer hub depends upon the currently unknowable future plans of the International Airline Group, whatever they or their successors may eventually decide. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 31 of 36 Page 188

D.6 London/Heathrow currently has strong handicaps as regards being a successful transfer hub: The Government policy is to charge a very high Air Passenger Duty, which degrades the competitiveness of transfer trips via London. The airport management has lacked a commitment to service -- as evidenced by its record of minimal snow-clearing equipment. Furthermore, a series of calamitous events have given the airport have a widespread reputation, deserved or not, for being an airport to avoid for transfers if possible. The conjunction of these factors leaves London/Heathrow in a difficult condition as regards any transfer hub ambitions. D.7 It is risky to justify major investments in airports on the future of transfer operations. The risk is that the transfer hub will decline or disappear. This can occur if the airline(s) delivering the hubbing lose competitiveness, lose interest in that location, disappear, or otherwise cease to provide hubbing operations. A prime European example is Zürich: it created a transfer hub for Swissair, which then disappeared (replaced by Swiss as a shadow of its former self), along with the Swissair transfer hub. Madrid prospectively faces possibly important changes in traffic, as the new IAG owners of its dominant airline (Iberia) reorganize its traffic and rescale its ambitions. In America, St. Louis built a new runway to serve its role as a transfer hub, but that role disappeared when American Airlines took over TWA and closed the transfer operations. Pittsburgh airport similarly became somewhat of a ghost town when US Airways shifted its hub to Philadelphia. The fact is that an important result of the economic deregulation of choices of locations for hubbing operations are inconstant. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 32 of 36 Page 189

Prospects for -airport system D.8 -airport system stem from the economic deregulation of the airport/airline new freedom to expand across the European Union. These changes are stimulating the growth of a range of new airlines, with new business models. These airlines offer customers a broad range of choices, and the competition between them ensures reasonably economical price-points. Experience elsewhere, in North America particularly, indicate that these airlines will become major components in the air transport industry, competitive with the traditional national airlines (such as British Airways, Lufthansa, Air France, etc.). D.9 This continuing evolution of the airport/airline industry in Europe could also -airport system. The new-model airlines are not going to be able to access London/Heathrow in any reasonable way: slots are rarely available; they are frightfully expensive when they do somehow become available; and in general, the worse ones are on offer. 30 s secondary airports as the new-model, generally low-cost, airlines expand. D.10 Judging from experience elsewhere, we can reasonably foresee the overall pattern of how the innovative airlines will expand: airlines will focus their activities at specific airports and use them as bases for offering competitive services for the region. We can already see this pattern emerge development at Stansted, and in the on-going expansion of easyjet and Norwegian at Gatwick. Of course, this expansion is unpredictable in detail. It will 30 The value of slots at London/Heathrow depends on the time of day and the length of time that separate any pair (airlines need to acquire slots in pairs, one to land an aircraft, the other to permit a departure). In 2008, Continental was reported to have paid about 140 million for 4 pairs of slots. In 2012, the International Airline Group paid something around 170 million for the slots they served domestic and shorter haul routes). Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 33 of 36 Page 190

depend on boardroom decisions responding to opportunities, as managing directors will see them. D.11 develop greater international roles as the innovative, low-cost airlines become more powerful. Experience strongly suggests that some of them at least will become major competitors to would decrease the relative role of British Airways, and the emphasis on its single focal airport, Heathrow. Furthermore, the runways at Gatwick and Stansted are long enough to serve transatlantic traffic, as they have done in the past. D.12 The evolution of the airport/airline industry in Europe will change, but not As regards connectivity, the evolution is likely to: Reduce the relative importance of transfer traffic through London, as this trade moves towards the continent and the East; and Stansted. These trends are as likely to increase UK connectivity as not. D.13 We need to recognize that in contrast to the major transfer hubs of the world the prime air transport market for the London airports is to serve the large origin and destination traffic. 31 A greater emphasis on this traffic (the complement of a reduced emphasis on favouring the convenience of travellers merely passing This is because, as indicated in paragraphs C.17 and C.18, good connectivity for 31 Over 2/3 of the traffic at Atlanta and Dallas/Fort Worth are transfers. In apposition, well over 2/3 of the London traffic comes from or is destined for the UK. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 34 of 36 Page 191

transfers is not the same as, in fact is often antagonistic to, good connectivity for traffic out of or destined to the UK. A decrease in emphasis on catering to longdistance travellers merely passing through the airport may increase the opportunities available UK travellers. D.14 Stansted, might furthermore spread the benefits of connectivity over the region. Travellers throughout the London region would have greater ability to benefit connectivity after a two-hour travel through or around London. As indicated in paragraph C.16, one of the faults of the Connectivity measures used in discussion of runway capacity is that they do not recognize that connectivity from an airport near at hand is so much better than connectivity at an airport far away. D.15 In any case, it is clear that multiple airports can provide high connectivity in metropolitan areas with strong local origin/destination traffic. The examples of Paris and New York demonstrate this possibility. The dominant Parisian airport, Paris/de Gaulle has not historically been organized to cater to transfer traffic and provides only a low level of this service yet Paris can be considered well connected to the world. Moreover the second airport, Paris/Orly, nicely provides convenient connections for the large population South of the Seine. The New York airports feature some airline transfer operations (those of Continental, now United, at New York/Newark; of JetBlue at New York/Kennedy; and between feeder services to intercontinental services). But overall the New York metropolitan region does not feature a dominant transfer hub. Yet the New York region is definitely well connected to the world. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 35 of 36 Page 192

Overall Prospects D.16 Combining the vision of the future UK and European airport/airline industry with the understanding of the requisites for an effective hub, the characteristics of multi-airport systems, and the implications for connectivity, the conclusions are that: The prospective evolution of the airport/airline industry works against London as the location of an effective transfer hub airport. Taken as a whole, the prospects favour competitive airports in continental Europe and the Middle East. - Stansted, might easily develop greater international roles as the emphasis on a single focal airport decreases. This shift might spread the benefits of connectivity over the region, much as has happened around New York. connectivity to the world via air transport. A greater emphasis on serving traffic originating in or destined to the London area (the complement of a reduced emphasis on favouring the convenience of travellers merely passing through) may in fact increase the connectivity for UK traffic. D.17 Finally, we must all acknowledge that the future is uncertain. We do not know how the travelling public will act, cannot anticipate how airlines will choose to compete, and definitely cannot control developments abroad. This implies that not overly commit the future to situations that might not develop. Dr. Richard de Neufville July 14 2013 Report to Gatwick Page 36 of 36 Page 193

Appendix 5 Runway Option Development Study Stage 1 Evaluation: Executive Summary Prepared by ARUP Page 195

Gatwick Airport Limited Runway Option Development Study July 2013 Stage 1 Evaluation: Executive Summary Page 196

This report takes into account the particular instructions and requirements of our client. It is not intended for and should not be relied upon by any third party and no responsibility is undertaken to any third party. 2 Page 197

1.0 Introduction 1.1 Purpose of this report Arup was engaged by Gatwick Airport Limited (GAL) to carry out studies to explore options for the provision of a second runway at Gatwick Airport. The output from this work will inform GAL s July 2013 submission to the Airports Commission. When Arup was initially commissioned it was envisaged that the optioneering work would be divided into two stages: - Stage 1 - a review of previous studies, which possible runway options. At the end of this stage, a joint evaluation workshop would be held with GAL, Arup and GAL s environmental consultants. The purpose of the workshop would be to identify which options should be developed further in Stage 2 and which options should be discontinued. This work would be carried out between November and December 2012. - Stage 2 - further development of the shortlisted options, where we would explore in more detail: crossings);; strategies for the provision of additional terminal facilities and apron capacity;; and obstacle assessments. This work would be carried out in 2013. We carried out a Stage 1 assessment in winter 2012 and through a joint evaluation workshop concluded that options with new parallel runways located to the south of the existing runway performed better. As a result, further work was undertaken for these options in 2013. In March 2013 GAL reviewed its proposed sift criteria and issued suggested criteria to the Airports Commission. In May 2013, the Airports Commission published Guidance Document 02: Long Term Capacity Options: Sift Criteria. This document sets out the sift criteria the Commission will use to assess submissions on long term options. Following publication of the Commission s criteria, in June 2013, GAL reviewed the assessment work undertaken as part of Stage 1. This was to see whether: applying the Airports Commission s sift criteria;; or GAL s suggested evaluation criteria would alter the results of the Stage 1 evaluation. This report records the output of the June 2013 evaluation. 1.2 Stage 1 objectives The objectives of Stage 1 were: 1. To identify a broad range of possible second runway options at Gatwick Airport;; and 2. To identify runway options which in GAL s opinion, were considered to perform less well against the evaluation criteria. At the outset of Stage 1, a target number of master plan many options would continue to be developed at Stage 2. 3 Page 198

2.0 Option development 2.1 Previous studies This study is not the starting point for exploring second runway options at Gatwick. Since 1990, the Government and owners of Gatwick Airport have been examining the possibilities for its expansion through studies such as the SERAS (South East and East of England Regional Air Services Study) and RUCATSE (Runway Capacity in the South East Study) programmes. The output from these previous studies was considered and informed the development of options presented in this section. 2.2 Developing Family Groups At the beginning of the optioneering process a long list of options was developed. Two key characteristics - Mode of operation of the runways - The location of the new runway with respect to the existing. Both characteristics were considered as a means of Groups. Mode of operation Three modes for operating the runways have been considered at Gatwick: - Dependent segregated if runways are segregated then one runway is used exclusively for departures and another only for arrivals. If runways are also dependent the sequencing of the departures needs combined capacity. For example, a departing aircraft can only begin its take-off roll once the landing aircraft touches down on the parallel runway. This mode requires a separation of equal or greater than 385m between runways. - Independent segregated - if the runways are independent, then the timing of departing aircraft can be independent of any aircraft landing movements. This mode achieves a higher capacity than a dependent system but requires a separation equal or greater than 760m between runways. Independent segregated operations can also be achieved with separations that are lower than 760m if the runways are staggered. - Independent mixed - both runways can accommodate independent arrival and departure movements on the same runway and operate independently from each other. Theoretically this mode can achieve the maximum capacity from the two runways but requires a separation of equal or greater than 1,035m between runways. Location of the new runway Three locations for the new second runway have been considered at Gatwick: - South of the existing runway and parallel to it;; - South of the existing runway, parallel to it but staggered to the east;; and - North of the existing runway, and parallel to it. Non-parallel runways were discussed and discounted early in the process because there were no obvious exclude these options can be reviewed. 4 Page 199

2.3 Overview of the Family Groups The parameters that characterise each Family Group assessed at Stage 1 are shown in Table 1. It should be noted that each Family Group represents a range of runway options. Schematic diagrams have been produced to illustrate each Family Group: the existing runway is shown as a black line, the existing apron and terminals are the blocks in grey and the envelope within which the new runway is located (minimum and maximum) shown in blue. A representative option for each Family Group was considered when undertaking the Stage 1 evaluation. This representative option is largely driven by an approximate runway separation which in turn has been established by considering the following from taxiway capacity needed to support the operation of close spaced runways;; apron and terminal capacity of the land north of the existing runway in order to minimise earthworks and landscape impacts. they illustrate likely locations based on information available to date. The optimum runway separation subsequent stages in the design development. Options similar in layout to FG-5 which include a second runway to the north but operate in independent mixed mode are technically feasible but were not considered further. 5 Page 200

Family Group Diagrammatic Layout Spacing Practical Mode of Operation Approx capacity Atm/hour Approx capacity mppa FG-1 Close spaced (385m - 759m) Representative option: approx. 600m Dependent segregated 70 60-66 FG-2 Close spaced & staggered (485m - 759m) Representative option: approx. 600m Independent segregated 85 75-82 FG-3 Mid to wide spaced (760m+) Representative option: approx. 1,035m Independent segregated 85 75-82 FG-4 Wide spaced (1,035m+) Representative option: approx. 1,035m Independent mixed 95 80-87 FG-5 Wide spaced (1,035m+) Representative option: approx. 2,900m Independent segregated 85 75-82 Table 1 Overview of Family Group capacities 6 Page 201

3.0 Evaluation of Family Groups 3.1 Evaluation criteria At a workshop in June 2013, the Airports Commission s sift criteria were used to undertake the evaluation of the options. The Family Groups were also considered against the criteria GAL suggested to the Airports Commission in March 2013. The Airports Commission and GAL s criteria are set out in Table 2. Airports Commission criteria (May 2013) Strategic fit Economy Surface Access Environment People Cost Operational viability Deliverability 3.2 Evaluation process To ensure that GAL had the available information upon which to come to an informed view, the workshop included representation from GAL s environmental, surface access and master planning teams, GAL s strategic and planning advisors, Arup s masterplanning and surface access teams and RPS. Where possible, assessments were made using objective measurable terms using information available from past studies as well as data from work undertaken in early 2013 by GAL, Arup and other GAL consultants. Where this was not possible, the team exercised professional judgement in conducting the appraisal. GAL criteria (March 2013) Demand, capacity and connectivity Competition The end-to-end passenger experience Environmental Social and community Financial and economic Resilience Deliverability Table 2 Sift criteria 7 Page 202

4.0 Evaluation against the sift criteria The performance of each Family Group against the Airports Commission s sift criteria was considered. In summary: FG-4 provides the highest hourly runway capacity and therefore performs better than the other Family Groups. FG-2, FG-3 and FG-5 all have slightly lower capacity so perform less well than FG-4. FG-1 has the lowest hourly runway capacity so performs least well of all the Family Groups. People This criterion considers two different issues: impact on users of the airport;; and impact on the surrounding community. The impact through construction and draw overall conclusions at this stage. For passengers, operational disruption during construction will be an important consideration. In this respect, the best performing family groups are those with the greatest separation between new and existing facilities. FG-5 therefore performs better than the other Family Groups. FG-3 and FG-4 perform better than FG-2 and FG-1 which have the most constrained sites. In terms of impact on communities FG-1 performs better than FG-2, which performs marginally better than FG-3 and FG-4. As the runway separation increases to the south, the land take requirement is greater and so the operational boundary gets closer to Crawley. FG-5 is likely to have a greater impact on surrounding communities than the other Family Groups. This is due to the new surface access corridors and support facilities required to support this option, which would impact the connectivity of Charlwood and Horley with their surroundings. Environment this sift criteria (see Table 3). This produced a complex conclusions at this stage. FG-1 performs better than the other Family Groups, however, due to the proximity of the new runway to the existing runway and the lower additional capacity provided. FG-2 performs better than FG-3, which performs better than FG-4. As the separation between the new and existing runway and the throughput of the airport increase, so do corresponding environmental impacts such as air, noise and physical land-take. FG-5 performs least well of all the options for a range of environmental sub-criteria. The air quality and noise impacts may affect new communities to a greater extent than other Family Groups and the runway would be located outside the safeguarded area resulting in Operational viability All options were considered to be operationally feasible. However, FG-4 performs better than the other Family Groups since it contains a wide runway separation allowing all operating modes to be accommodated thereby providing the greatest operational resilience. FG-5 and FG-3 perform better than FG-1 and FG-2 because they are wide separated runways and whilst they would normally operate under independent segregated mode they could theoretically accommodate departures from both runways during peak departures. FG-2 performs better than FG-1 since it allows independent runway operations and provides greater resilience in terms of slightly reducing the risk of an incident requiring closure of both runways. 8 Page 203

Cost The costs per additional annual passenger for FG-3 and FG-4 are broadly the same and without differentiate between them. Since the costs for these options are the lowest they perform better than the other Family Groups. FG-2 performs less well than FG-3 and FG-4. The cost of FG-2, while not explored in detail, will inevitably be higher than FG-3 as it has the same capacity but requires far greater earthworks and construction over the railway. FG-1 performs less well than FG-2 due to the lower capacity of this option, which means that the cost per passenger is greater. FG-5 performs least well of all the Family Groups since it is likely to have the highest CAPEX. While the costs for this option has not been explored in detail, FG-5 will be the most expensive to construct due to the volume of earthworks required (circa 18m cubic metres from previous studies) and the additional surface access infrastructure required to service this option. Deliverability FG-3 and FG-4 perform better than the other Family Groups. This is because the construction risks can be more readily managed as there is a greater separation from the existing runway and the fact that the runway falls within the safeguarded areas should reduce consenting risks. FG-1 performs better than FG-2. FG-2 would require the relocation of the sewage treatment works and complex construction over the railway. The new sewage treatment works would also need to be constructed at an alternative location prior to the runway being built. FG-5 performs least well of all the Family Groups. The runway would be located outside the safeguarded area and has extensive earthworks. Whilst this option allows construction to take place remotely from the on-going airport operations it would have the longest and most complex phasing due to the extensive earthworks. Surface access reason to suggest that it may not be feasible to provide the infrastructure that would be needed to support the delivery of any of the Family Groups. However, the performance of the Family Groups differs when compared against this criterion. FG-1, FG-3 and FG-4 perform better than the other Family Groups because they provide new terminal infrastructure relatively close to the existing rail and road networks facilitating the creation of new connections. FG-2 performs less well than FG-1, FG-3 and FG-4. It is likely that the delivery of road and rail access to any new terminal capacity will be similar to FG-1, FG-3 and FG-4. However, it is possible that the construction of the new runway over the existing railway line would have an impact on rail services, resulting in delay during the construction phase along with additional cost. FG-5 performs least well of all the Family Groups. New terminal capacity for this option is expected to be to the west of Horley and will be less accessible from existing road and rail networks than the other Family Groups. Owing to the likely distance between the new terminal and existing rail station, this could have an adverse impact on public transport mode share. The creation of a new surface access corridor is likely to impact on existing roads (e.g. A23) in the vicinity of Longbridge Roundabout and Povey Cross. The new runway in this location would not impact the existing A23 to the south, but would have a correspondingly greater impact on local roads to the north-west. 9 Page 204

5.0 Overall performance The overall performance of each Family Group against the Airports Commission s criteria is as follows: Family Group 1 FG-1 performs better than other Family Groups in terms of environmental impacts primarily because of the location of the new runway close to the existing However it provides the least capacity, is not as cost effective and cannot be delivered as easily as some other Family Groups. It also has operational limitations operation and the compactness of the site. Family Group 2 FG-2 performs less well in comparison to other Family operational viability and deliverability criteria. This is primarily a result of the need to build over the railway, relocate the sewage treatment works and the resulting fragmented airport layout from this runway impacts it performs better than all of the Family Groups except FG-1. Family Group 3 FG-3 performs relatively well in all criteria, so impacts than other options. From an environmental perspective the runways can be operated with departures and arrivals periodically alternating on each runway providing noise respite. It is believed that the risks associated with deliverability can be managed and the wide separated runway provides greater operational resilience. Surface access infrastructure could also be provided to support this option. Family Group 4 FG-4 performs better than the other southern Family viability. This is because it maximises the space for the and capacity, through the adoption of mixed mode. It also performs well in terms of surface access, cost and deliverability. However, it performs least well of the southern Family Groups in terms of the effect on the environment and surrounding communities. Family Group 5 FG-5 performs the least well of nearly all family options in terms of environment, surface access, cost and deliverability criteria. In terms of environmental impacts this is due to the effects on the countryside to the north of the airport. For surface access this is due to the likely need to create new access points, whilst for cost and deliverability this is due to the extent of earthworks and other construction challenges. FG-5 does however perform better than many other Family Groups from an operational viability perspective because it locates all the aprons between the runways. The evaluation was was also carried also carried out against out against GAL's criteria, GAL s which criteria, resulted which in the same resulted overall in performance for each Family Group. the same overall performance for each Family Group. 10 Page 205

6.0 Conclusions At the end of the workshop GAL considered whether work in the next stage of the study should continue or be discontinued on each Family Group. It should be noted that, options which were discontinued might need to be re-examined at a later stage should new information come to light, which might alter the conclusions of the assessment. FG-1 FG-2 FG-3 FG-4 FG-5 Has operational and capacity limitations and performs less well than all other Family Groups in this regard. However it performs better than the other Family Groups from an environmental perspective and, for this reason, work on this option should continue. cost, operational viability and deliverability. In particular there are concerns around the impacts of construction over the railway. It was concluded that more work should be done to explore this constructability issue. Despite concerns over constructability and the impact on the sewage treatment works, apart from FG- 1, this option performs better than any of the other Family Groups from an environmental perspective. be fully articulated and therefore further work should be undertaken to better understand the potential Provides a balance between all the criteria and although other Family Groups perform better than this therefore recommended that work should continue on this option. viability but less well than others on environmental and community impact considerations. It was considered that work on this option should continue. Performs less well than other Family Groups on most of the criteria given the greater environmental, cost and construction issues associated with this option. In the context of a two runway Gatwick work on this option should be discontinued. Status of the options: July 2013 FG-1 Work to be continued FG-2 Work to be continued FG-3 Work to be continued FG-4 Work to be continued FG-5 Discontinued 11 Page 206

www.arup.com Page 207

Appendix 6 Gatwick Surface Transport: Executive Summary Prepared by ARUP Page 209

Gatwick Airport Limited Gatwick Surface Transport July 2013 Gatwick Surface Transport: Executive Summary Page 210

A3! Walsall Sutton Coldfield 3. 011 Travel time to Gatwick Airport Public Transport and Private Cars P0 Peterborough Legend M69 Dudley Birmingham West Bromwich Travel time less than A1(M) Coventry M5 31-45 m 46-60 m A14(M) M1 61-75 m M45 76-90 m Northampton M11 Ipswich Luton Oxford A1(M) M40 Watford Southend- on- Sea Swindon P0 2013-07- 09 RC Issue Date By M25 Metres 0 10,500 21,000 London Slough Reading M4 M25 4 Pierhead Street Capital Waterside, Cardiff, CF10 4QP Tel +44 29 2047 3727 Fax +44 29 204 www.arup.com M2 M26 Client Gatwick Airport Limited q M3 Gatwick Job Title M20 Surface Access Study M23 M271 M27 Travel time to Gat Public Transport a Southampton A3(M) Brighton Portsmouth Poole Bournemouth Scale a t A3 1:800,000 Job No Drawing Statu 225680-10 Prelimin Drawing No 011 C:\Users\ringo.chan\Desktop\GatwickAirport\JourneyTime.mxd 2 Page 211

1.0 Introduction Our analysis provides evidence of how surface access presents a particular strength supporting proposals for a second runway at Gatwick. Further, it shows that, with appropriate mitigation, the quality of surface access supports investment at the airport delivering sustainable access solutions consistent with Government policy. We have provided the context for travel demand arising from expansion at Gatwick and indicated how delivered, including mitigation of any gaps in the committed provision. In association with other workstreams a co-ordinated masterplan for airport expansion and surface access provision can deliver sustainable growth in common with Government objectives, goals and targets for Gatwick airport and, importantly, meet the needs of passengers. Gatwick will use this analysis to develop a preferred surface access strategy that delivers a greater share of journeys by sustainable modes, strengthening rail in particular, as a key part of a future vision for the airport. 3 Page 212

2.0 Meeting Government objectives Gatwick is London s best connected major airport, with direct access to the strategic highway network and national rail network. Growth at Gatwick will support Government s economic objectives for increasing the attractiveness of the UK as a global business centre and forging better links with emerging markets. Gatwick s proposals are based on the principles of sustainable surface access that meets the Government s policy agenda. Submissions to the UK Airports Commission for providing additional airport capacity in the longer term are required to consider the impact of expansion on a range of evaluation criteria. The Airports Commission Guidance Document 01 (February 2013) sets out the factors relevant to surface access and the analysis indicates Gatwick meets all of the following: Economy surface access measures are capable of the local and regional economy, increases access to jobs and encourages investment;; Social surface access improvements help maintain excellent connectivity by road and rail and will improve network resilience, in particular supporting sustainable surface access modes accessible to all;; Climate Change Gatwick s strategy supports maintaining a high level of rail mode share by making best use of available capacity and promoting rail access;; Local Environment increasing capacity to accommodate trips by rail will encourage mode shift Accessibility proposed measures enhance Gatwick s overall accessibility for communities across the South East with more direct public transport journey opportunities and wider connectivity with seamless interchange;; Feasibility proposed mitigation comprises deliverable solutions, including planned investment in In addition to these criteria it is recognised that the networks and services important for surface access also accommodate other journey purposes with a wide investment in the railway and demand for surface access helps support the business case for further enhancements. The proposals for surface access balance the needs of the air passenger and the wider community as follows: End-to-end journey (passenger experience) measures to improve surface access include enhanced quality of rail access, reduction in peak hour crowding and extra capacity at strategic highway pinchpoints to reduce congestion, helping to deliver a consistent level of quality;; Wider community attracting increased number of journeys to Gatwick by rail provides vital off peak and contra-peak demand that supports planned investment in rail, reduces subsidy and improves rail value for money. Meeting wider policy objectives Our review of relevant policies indicated a range of national, regional and local policies and guidance to be considered. Table 1 illustrates how well surface access to Gatwick will meet these policy objectives allowing for the proposed mitigation. 4 Page 213

Policy Compliance with policy National National Planning Policy Framework (March 2012) Strong collaboration with local stakeholders. Government Plan for Growth (2011) National Infrastructure Plan (March 2011) South East Airports Taskforce Report (2011) Eddington Transport Study (2006) Aviation Policy Framework (March 2013) Aviation White Paper, The Future of Air Transport (2003) White Paper Creating Growth, Cutting Carbon: Making Sustainable Local Transport Happen (2011) Expansion of Gatwick and investment in the surrounding area will increase competitiveness. Plans to make best use of the existing runway at Gatwick and consider second runway options. Investment at Gatwick to cater for short term growth with one runway. Investment to promote greater rail access to Gatwick and a Surface Access Strategy focused on sustainable access. Growth at Gatwick underpinned by high quality rail access and high public transport mode share for O-D passengers. Gatwick achieves a high public transport mode share with potential to increase this and mitigate the impact of congestion on local and strategic highways. Surface access priorities for managing the demand for car access to Gatwick and increase public transport share. Command Paper Reforming our Railways: Putting the Customer First (2012) Government Tourism Policy (2011) Network Rail Industry Strategic Business Plan 2014-2019 (January 2013) Focus on increasing rail mode share at Gatwick and station investment to improve the passenger experience. Gatwick supports a strong leisure market and high quality surface access links to a wide range of destinations. Growth at Gatwick would strengthen contra-peak demand and increase off-peak demand supporting the case for investment. Regional Network Rail Sussex Route Plan (January 2013) Network Rail Long Term Market Studies (2012-2013) London Mayor s Transport Plan Transport for London Business Plan Coast to Capital LEP and the Gatwick Diamond Sussex Route Utilisation Strategy Great Western Route Utilisation Strategy London and South East Route Utilisation Strategy Growth at Gatwick would strengthen contra-peak demand and increase off-peak demand supporting the case for investment. Contribution of Gatwick to economic value and improving affordability through off peak and contra-peak demand. Investment to promote greater rail access to Gatwick and a Surface Access Strategy focused on sustainable access. Gatwick supports growth in London and across the South East with improved efficiency of the transport networks. Investment to promote greater rail access to Gatwick and a Surface Access Strategy focused on sustainable access. Growth at Gatwick would strengthen contra-peak demand and increase off-peak demand supporting the case for investment. Investment to promote greater rail access to Gatwick and a Surface Access Strategy focused on sustainable access. Growth at Gatwick would strengthen contra-peak demand and increase off-peak demand supporting the case for investment. Local West Sussex Local Transport Plan 2011-2026 Surrey Local Transport Plan 2011-2026 East Sussex Local Transport Plan 2011-2026 Surface access priorities for managing the demand for car access to Gatwick and increase public transport share to achieve sustainable access to the Airport. Investment to promote greater rail access to Gatwick and a Surface Access Strategy focused on sustainable access. Kent Local Transport Plan 2011-2026 Crawley Local Plan Local Plans other neighbouring districts Surface access priorities for managing the demand for car access to Gatwick and increase public transport share to achieve sustainable access to the Airport. Accessibility and connectivity improvements form the cornerstone of the surface access strategy aims. Table 1 Summary of key policies, guidance and strategies 5 Page 214

3.0 Supporting growth The needs of passengers will be met through the access at a level of quality and convenience that meets their expectations. Importantly for accommodating growth the mitigation will be delivered before crowding and congestion affects Gatwick s attractiveness. Short Term needed prior to the completion of a second runway in pressure on the rail network in the peak due to growth in rail commuting. All rail users on this part of the investment and other planned improvements. Gatwick s high rail mode share can be maintained or increased without further investment. The principal changes as a result of committed investment are as follows. Delivery of the Thameslink Programme, which comprises: - New rolling stock with more capacity and longer trains - Consistent peak and off peak service to a transformed London Bridge station - Enhanced interchange with Underground and Crossrail services at Farringdon - More direct or one change access to destinations via Kings Cross, including Peterborough and Cambridge. Additional capacity improvements comprising: - Committed train lengthening on some Southern services to 12-car trains, which will provide greater capacity for commuter movements - Completion of the new platform at Gatwick Airport station. - A new platform at Redhill station facilitating an improvement in the Great Western service between Reading and Gatwick Airport. From 2018, Crossrail will deliver up to 24 trains per hour across Central London in the peak, all calling at Farringdon, which will become a key interchange station with Thameslink services to Gatwick, accessible in under 40 minutes. The strategic road network, and parts of the local network serving Gatwick and local communities growth occurs alongside airport activity. A Route Management Strategy is proposed for the M23 and M25 Junctions 1-10 in order to manage forecast mitigation will help manage the impact of congestion that could affect accessibility in advance of a potential second runway in 2025. Without this mitigation, and a strategy for implementation over the next 12 years, Gatwick s contribution to the UK economy may be reduced. 6 Page 215

The Route Management Strategy should include the following: - Completion of M25 Managed Motorway Junctions 5 to 7 - Capacity improvements at the M25 Junction 7 / M23 Junction 8 interchange, including slip roads - Managed Motorways with hard shoulder running on M23 Junctions 8 to 9 - separation) northbound towards Junction 8 and southbound from Junction 8 - M23 Spur Road (Junction 9 to 9a) widening to three lanes A number of local improvements to enhance access at the South Terminal and North Terminal roundabouts will be implemented to improve the passenger experience. Of particular importance, from the list above, are capacity improvements at the M25/M23 between the two motorways and for enhancements at M23 Junction 9 to increase slip road capacity and will also require local capacity improvements for access to the North Terminal and South Terminal forecourts and short term parking. These improvements will be required within the next 12 years, before a second runway could be completed. 7 Page 216

Medium Term For Gatwick, the letting of a new, integrated Thameslink, Southern and Great Northern Rail Franchise in 2014 and agreement on infrastructure spending plans for Control Periods 5 and 6 are crucial Brighton Main Line is one of their top priorities and supporting growth at Gatwick strengthens the business case for rail investment. Our analysis has shown that investment in the railway network is needed even without the requirements of a second runway in the mid-term due to regional passenger growth. Network Rail has a series of planned improvements that they wish to deliver in CP6 (2014-2019). These, along with committed for both regional (non- airport) related demand growth and the demand associated with an addition runway at Gatwick. Furthermore, the distribution of air passenger demand, providing off peak and contra-peak direction additional rail investment. The key measures required in the mid-term and with an additional runway are: - Gatwick Express Gatwick Express service in the Thameslink Franchise to a 30 minute, non-stop service every 15 minutes. This is critical for not only Gatwick, but also the Brighton Main Line to deliver and meet future demand. - Gatwick Express Gatwick Express service is essential to attract air passengers to rail and contributes important franchise revenue to reduce the cost to the public purse. Gatwick supports investment in new rolling stock for Gatwick Express with on-board ticket sales, with more luggage space;; fully accessible for all passengers including those with reduced mobility, families and passengers with luggage. This will focus air passengers on the premium Gatwick Express and makes best use of available capacity. - Brighton Main Line Network Rail has put forward a number of schemes in their Business Plan in January 2013 to provide additional peak hour capacity for both commuters and air passengers and these should be brought forward in Control Period 6. The schemes are: Three Bridges signalling;; grade separation of Windmill Bridge Junction;; remodelling of East Croydon station to provide additional platforms and track for fast lines (bidirectional);; improvements to Stoats Nest Junction;; grade separation of Keymer Junction;; alternations to platform 8 at Victoria and possible signal alterations at Clapham Junction. GAL will support further investment at Gatwick Airport railway station to provide additional concourse capacity and access to platforms, improve quality of facilities and meet air passenger aspirations for seamless end to end journeys. This work will be coordinated with Network Rail and builds on the current expansion work due for completion in 2014. Additional highway demand from a second runway would require further local highway improvements and it is recommended that the A23 be diverted to the east of the airport to improve network resilience and use the existing access from the M23 at Junction 9 but provides for separate routing of airport and regional/ enhanced local access for the community. These proposals will continue to be developed and integrated with pedestrian, cycle and motorcycle access. 8 Page 217

a greater rail mode share if additional capacity improvements are made, in line with planned enhancements under consideration by Network Rail. This would increase the proportion of air passengers using sustainable modes to access the airport as well as Table 2 indicates the timescales by which improvements in surface access will be necessary to support sustainable growth, noting the earliest date for a second runway to be operational is approximately 2025. These measures correspond to increasing capacity on rail services, local and strategic highways to ensure demand can be accommodated without will be necessary to achieve the full potential of the airport with just a single runway, and can therefore be separated from surface access requirements for a second runway. Delivering these improvements, either directly or in partnership with transport providers and Government, will ensure that projected growth forecasts can be accommodated at the requisite level of service and quality. The quality of rail access to Gatwick and the contribution the airport makes to sustaining off peak and contra-peak demand, supports the business case for capacity enhancement. Rail access may grow in importance, with a corresponding higher mode share, if the required highway improvements are not delivered in accordance with the rate of demand growth or fail to deliver the required level of capacity. Over the long term, the capacity of the M25 will remain a constraint and there is little scope for further incremental improvement. This is a strategic issue for all South East airports and could drive an increase in rail and bus mode share. It is essential for meeting passenger needs that the quality of rail access is maintained and more is done to cater for the needs of air passengers, notably through Gatwick Express. 2015 2040 2025 Local Highways Strategic Highways Railways Additional capacity for access to South Terminal and North Terminal. Mitigation of increased traffic on A23 at Longbridge Roundabout and North Terminal. Facilitate continued access for local bus and express coach with an increasing range of services and destinations. Completion of ongoing M25 and Dartford Crossing improvements and A23 enhancement scheme. Initial stage of a Corridor Enhancement Plan for the M23 including: - Increased slip capacity at the M23/M25 Junction. - Managed motorway scheme for M23 Jn 8-9. - Enhanced capacity at M23 Junction 9 slips. Delivery of committed Network Rail improvements to provide essential capacity for growth: - Platform improvements at Gatwick Airport and Redhill stations. - Thameslink Key Output 2 enhancements. - Redhill-London Victoria service enhancement. - Second train per hour Reading-Gatwick Airport. - Retention of dedicated Gatwick Express service in combined Thameslink, Southern and Great Northern franchise. Local network capacity improvements with new junctions for access to South Terminal and North Terminal. Re-alignment of A23 to provide increased capacity and better access to and from the M23 and Gatwick. Local mitigation for expansion of the western and southern boundaries of the airport. Second stage of a Corridor Enhancement Plan for the M23 including widening the Junction 9-9a spur road. Capacity delivered to create two extra train paths to London Victoria by Control Period 6 (2019-2024), including the following measures: - Additional capacity at London Victoria station for Sussex Routes (Platform 8). - Grade separation and capacity enhancement at Windmill Bridge Junction. - Additional track and station enhancement at East Croydon. - Grade separation at Stoats Nest Junction. - Capacity enhancement at Keymer Junction. - Further development of concourse and facilities at Gatwick Airport station. - Opportunities to increase rail mode share by improving or adding direct services made possible by increased train paths to London Victoria. Table 2 Programme of surface access mitigation measures 9 Page 218

4.0 Meeting Gatwick goals and targets Gatwick aims to achieve sustainable growth and become London s airport of choice. Rather than just an airport for the South East, Gatwick also serves the rest of the UK, with excellent connectivity for access and this is evidenced by the range of domestic connections to other UK towns and cities and the wide distribution of surface access journeys with air passengers travelling from all parts of the UK. The approach to delivering long term surface access capacity also helps to meet Gatwick s key strategic priorities from the 2012 Airport Masterplan, as follows: Deliver the best passenger experience by securing additional capacity to mitigate delays due to congestion, reducing overcrowding and delivering high quality local highway access, rail services and station facilities. Help our airlines grow by ensuring capacity for improvements designed to deliver seamless connections and high quality. by providing choice and enhanced facilities for bus, coach and rail passengers. Protect and enhance our reputation through a focus on integrating surface access with airport facilities to support. Build a strong environment, health and safety culture designing for safe onward travel by road (including cycling) and providing attractive options for public transport access to encourage mode shift to sustainable forms of transport. Develop the best people, processes and technology supporting innovation and high levels of customer service and convenience for the whole journey. 10 Page 219

5.0 Development of a preferred solution for Gatwick Our analysis has been used to develop a series of to cater for forecast growth in the different runway scenarios, at a suitable level of service. The suggested measures are not the only solutions but correspond with committed measures and feasible schemes. As part of the ongoing process for preparing a submission to the Airports Commission a series of potential measures, will need to be undertaken. This includes, but is not limited to, the following tasks: - Review and update of policy compliance to include alignment with Government policy and Airports Commission guidance;; - Further development and testing of local highway and access model;; - Sensitivity testing of strategic models to account for updated forecasts and alternative scenarios;; - Develop and test options for further enhancement at Gatwick Railway Station in line with forecasts for second runway demand;; - Consider options for demand management of car access with development of improvement strategies for alternative modes;; - Develop highway design solutions, identify land requirements and undertake value engineering of possible solutions including alternative options to - Develop a strategy for access to airport facilities by all modes, including the location and capacity of facilities, to ensure road and user safety is maintained or improved;; - Identify any additional development-related impacts on and around the airport site;; - Undertake journey time analysis and compare access by road and rail to South East airports;; - Combine analyses to provide a detailed overall mitigation strategy, including phasing, and demonstrate the level of accessibility and connectivity provided;; - Contribute to a business case appraisal (Consistent with the DfT s WebTAG approach) of the preferred strategy. All of these tasks will be undertaken in support of airport masterplanning, environmental and business case workstreams, with appropriate co-ordination of programme, resources and technical information. It is anticipated that these tasks will also feed in to an ongoing stakeholder engagement and subsequent consultation exercise. 11 Page 220

6.0 Summary In summary, the analysis of local and strategic surface access requirements for an expanded Gatwick meet the two statements in the introductory section, that surface access is not a barrier to growth and can be considered a strength for Gatwick s submission to the Airport s are drawn from the analysis and evidence: - Surface access is not a barrier to Gatwick s growth with a second runway;; - Mitigation to accommodate demand growth presents several challenges for delivering strategic road capacity, with or without the addition of a second runway, leading to a recommendation for a Route Enhancement Strategy for the M23 and connection to the M25;; - Local highway improvement will be needed for airport access before 2025, along with strategic capacity enhancement to the M23 and M25/M23 junction, to meet passenger forecasts due to air passenger growth even without a second runway;; - Resilience issues will remain over the long term for the strategic highway network, particularly relating to the M25 and its junction with the M23;; - Planned investment on rail, with continued capacity on Gatwick Express can accommodate rail growth at the current mode share without additional investment;; - Network Rail s committed and potential improvements to the Brighton Main Line and for growth;; - Although train crowding in the high peak hour will be much less than current levels after committed improvements are completed it is essential for Gatwick s growth that Gatwick Express remains as a dedicated service with at least four trains per hour, to maintain capacity and high quality rail access for air passengers;; - Network Rail s plans for further improvements in Control Period 6 will improve network resilience and provide scope to create additional paths between London Victoria and Gatwick, accommodating growth and creating the possibility of raising mode share;; - Engagement with national agencies will be essential to optimise delivery, ensure value for money and to and the economy;; - The overall approach to delivering surface access improvements is consistent with Government guidance (including the recent Aviation Policy communities and for getting best value from existing networks and services. 12 Page 221

Page 222 13

www.arup.com Page 223

Appendix 7 Gatwick Airport Second Runway Wider Economic Benefits Executive Summary Prepared by Optimal Economics Page 225

Gatwick Airport Second Runway Wider Economic Benefits Executive Summary 16 July 2013 Page 226

Optimal Economics Ltd 1 St Colme Street Edinburgh EH3 6AA Tel: 0131 220 8461 www.optimaleconomics.co.uk 1 Page 227

1. The Airports Commission was set up by the government to examine the need for additional UK airport capacity and to recommend to government how this can be met in the short, medium and long term. 2. long term needs for airport capacity, the development of a second runway at London Gatwick Airport. 3. In January 2013 the Department for Transport (DfT) published its latest forecasts for passengers and air transport movements at UK airports. provided sufficient capacity is provided, passenger numbers at UK airports will rise from 219 million passengers in 2011 to 480 million by 2050. 4. However, the current provision of runway capacity in the UK is insufficient to accommodate this demand. 5. Failure to provide additional runway capacity will reduce the level of air traffic to and from the UK and reduce the connectivity of the UK. 6. Considering passenger capacity, t the level and composition of traffic in the event that no additional runway capacity is created. For the UK, the gap between demand and capacity is 3.4 million passengers per annum in 2020, rising to 34.5 million by 2050. 7. The shortfall of capacity relative to demand will be much more acute in London and the South East than in the rest of the UK as all existing London capacity will be fully utilised before 2030. The DfT modelling assumes that as capacity is reached at the London airports some of the million passengers are assumed to shift from London to other UK airports. By 2050 this shift is assumed to be very much larger. 8. SH&E have undertaken work for Gatwick airport which estimates that by 2050 over 50 million passengers who would prefer to travel through London airports would have to use other 9. DfT figures produce an even greater displacement requirement and imply that in 2050 some 60 million passengers (12.5% of all UK passengers) will be people who would have chosen to fly through London had capacity existed and who will be flying from regional airports. 10. These displacement effects, if they occur, will involve restricting access to London and the South East and will reduce the connectivity. While residents of through airports outside the region it is less evident that this would be the case for in-bound tourists or for business travellers whose firms might respond by moving business activity to better connected locations. 11. The concept of connectivity is more qualitative than is a simple count of passenger numbers. The key elements of connectivity are, in addition to the number of seats available on flights from an airport, recognised to include the number of destinations, the frequency of service, the number of seats on each flight, the characteristics of the destination airports (e.g. economic importance and onward connections) and cost. 12. It is not possible to quantify the level of connectivity which the UK economy will require in its airport system in the same way as traffic forecasts can be made. However, we can say that increased connectivity will be required if the UK is to maintain its competitive position at a global level. The only way in which connectivity can be increased is by enabling UK businesses which are most dependent on international air links to enjoy access to highly connected airports. This can only be achieved by allowing that airport system which has reached a critical level of connectivity to expand. There is no prospect of creating elsewhere in the UK the levels of connectivity achieved by the London airports so that a policy of limiting growth in the number the mid 2020s. 2 Page 228

13. Failure to provide capacity and to develop connectivity will have severely adverse effects on the UK economy in terms of lost trade and investment as well as tourism. A substantial body of research evidence has established a strong and partly quantifiable relationship between aviation growth/connectivity and economic growth. Of particular importance to the UK will be development of air links and connectivity with the rapidly growing and emerging economies, mainly in the East and South Asia. 14. Development and expansion of air services and connectivity is of special importance to the London area both because London is a global economic centre and because early capacity constraints constitute a threat to its competitiveness. 15. If airport capacity in the UK, and specifically in the London/South East area, is not increased in the next decade then the following consequences will result: By 2030 the number of journeys through the London airports will fall short of demand by over 12 million (according to DfT forecasts) rising to 90 million by 2050 According to DfT forecasts, the UK would otherwise have been made in 2050 even this figure assumes that many travellers who would have wished to travel to London will switch to regional airports the mid 2020s and may fall if existing origins/destinations fall in economic importance relative to destinations in emerging markets. 16. A fully utilised second runway at Gatwick would enable the airports traffic in 2050 to grow between 60 mppa and 87 mppa depending on the option. The higher growth options would enable demand for air travel in the London and South East area to be met until the 2040s. Work done by InterVISTAS for Gatwick Airport indicates that a second runway at Gatwick would provide at least as great an increase in capacity for the London airports system as a third runway at Heathrow and a similar, and in some cases greater, level of connectivity. 17. A Gatwick expansion would also deliver the increased connectivity required to enable the UK economy to benefit from global economic growth: it would do so by increasing frequency of expansion of services to emerging market economies including Russia and the Far East/South Asia. It will thus prevent the adverse economic developments described above: thus the avoidance of these adverse developments, and of their economic consequences including lost economic growth, is the main economic benefit of the second runway. 18. Using parameters derived from research by Oxera and Oxford Economic Forecasting on the relationship between airport capacity/connectivity and economic performance we have made an estimate of the economic gain (increase in GVA) from a second runway based on a traffic level at the airport which would enable UK demand to be met (87 million passengers in 2050) through impacts on trade, connectivity and investment (Oxera) and overall (OEF). These impact figures are not additive as they overlap to a degree. 19. The results of this analysis are set out in Table 1 in in terms of the impact in three years (2030, 2040 and 2050) and as the Present Value in 2025 of the flow of benefits over the 2025 2050 period. 20. Notwithstanding the uncertainties involved in the estimates of impact, it is clear that a second runway at Gatwick would be able to generate very large wider economic benefits which would be over and above the benefits to users. 3 Page 229

Table 1: Wider Impacts of LGW R2 on GVA (87 mppa in 2050) Impact on GVA through Trade m Impact on GVA through Connectivity m Impact on GVA through Investment m Impact on GVA using OEF Parameters m 2030 2040 2050 104 284 516 512 1,389 2,522 1,676 4,550 8,261 420 1,140 2,070 PV in 2025 3,500 17,119 56,071 14,049 21. Even a much lower capacity two runway configuration would produce very substantial wider economic benefits as shown in Table 2. Table 2: Wider Impacts of LGW R2 on GVA (PV at 2025) (60 mppa in 2050) Impact on GVA Connectivity m Impact on GVA Trade m Impact on GVA Investment m Impact OEF Parameters m 1,140 5,574 18,258 4,574 22. Failure to provide airport additional capacity will also lead to the loss of 4.5 million tourist visits by 2050. That is equivalent to 20% of 2011 in-bound tourism numbers and, using 2011 data, would imply a loss of 3 billion of tourist spending in 2050. The loss would be around 840,000 in 2030 ( 561 million of spend which would create 336 million of GVA). This loss would be avoided by provision of a second runway at Gatwick 23. The particular importance of aviation to the London economy means that the displacement of traffic from London airports to regional airports envisaged in the DfT forecasts will not be costless. Dim restricting air travel and connectivity will be damaging to the London economy and ultimately to the national interest. A second runway at Gatwick would, as discussed above, largely eliminate this competitive threat. 24. Gatwick is already a catalyst for economic development involving aviation intensive and international business in its local sub-region. Expansion of the airport to the level made possible by a second runway would intensify that catalytic process enabling the sub-region to develop the same dynamic clustering process which has been evident in the M4/Thames Valley area and thus providing the UK with a further attractive destination for mobile international investment. Gatwick is the only airport in the UK with the same critical mass of traffic and depth of local economy needed to replicate the effects observed around Heathrow. 4 Page 230

25. While it will certainly be desirable for regional centres to develop route networks this is not, and will not be for the foreseeable future, an effective alternative to links with highly connected centres. It is well known that UK regional access to Heathrow has been declining for some time with only 5 UK destinations now served in comparison with 11 from Gatwick. Development of Gatwick, with the potential for increased frequency of service to UK destinations and operational developments to enhance potential for flight transfers would provide UK regions with improved global connectivity. 5 Page 231

Appendix 8 Gatwick Airport Second Runway Employment and GVA Estimates Summary Report Prepared by Optimal Economics Page 233

Gatwick Second Runway: Employment and GVA Estimates Summary Report July 2013 Page 234

Optimal Economics Ltd 1 St Colme Street Edinburgh EH3 6AA Tel: 0131 220 8461 www.optimaleconomics.co.uk Page 235

Contents Summary 1 Page 236

Summary 1. The Airports Commission was set up by the government to examine the need for additional UK airport capacity and to recommend to government how this can be met in the short, medium and long term. 2. The development of a second runway at London Gatwick Airport is a proposed solution to the to the economy in two ways. First the operation of the airport provides employment and creates incomes (e.g. GVA) at the airport and in businesses in the local, regional and national economies which supply the airport with goods and services needed for its operation. Second, they are facilitators of other economy activity through the provision of the services they provide they enable the movement of people (for leisure and business purposes) and freight. 3. This report assesses the employment and GVA associated with the development of a second runway at Gatwick in the South East and London economies. A separate report considers the wider economic benefits. This report considers three scenarios which reflect alternative operational layouts of a second runway. These second runway scenarios are all compared to the base case where Gatwick continues to operate as a single runway airport. The scenarios are defined as follows: Scenario 1: base case with Gatwick operating as a single runway airport; Scenario 2: a second close spaced runway operating in dependent segregated mode; Scenario 3: a second wide spaced runway operating in independent segregated mode; and Scenario 4: a second wide spaced runway operating in independent mixed mode. 4. Scenarios 2, 3 and 4 relate to Runway Options 1,2 and 3 in submission to the Airports Commission. 5. The employment and GVA associated with the scenarios is made up of three components: Direct employment and GVA: people whose jobs are entirely related to and dependent on the operation of the airport. Their wages and salaries are the main component of the GVA directly created by the airport in the local and regional economies. Direct employment is split into two categories direct on-airport and direct off-airport. The distinction relates to the location of employment either within or outside the airport boundary. Indirect employment and GVA: employment and GVA created by businesses located at the airport purchasing goods and services from suppliers in the South East and London who in turn may purchase further goods and services from regional suppliers. Induced employment and GVA: further employment and GVA in the South East and London supported by the expenditure of those whose incomes are derived directly or indirectly from the airport. 6. The two main drivers of the employment and GVA estimates are traffic growth and productivity growth between 2025 and 2050/51. 7. The different runway scenarios imply different levels of capacity and thus yield different traffic projections. Without a second runway, traffic at Gatwick is forecast to increase from 44.2 million passengers per annum (mppa) in 2025 to 48.4 mppa in 2050/51. With a second runway the airport is able to handle 60 mppa (Scenario 2), 72.9 mppa (Scenario 3) and 81.5 mppa (Scenario 4) in 2050/51. 1 Page 237

8. Given the uncertainties associated with forecasting over a long period to 2050/51, two alternative productivity assumptions have been adopted of 1% and 2% per annum.. A low productivity assumption will generate a higher employment forecast and a lower GVA forecast while a higher productivity assumption will generate a low employment forecast and a higher GVA forecast. Results: Low Productivity 9. Under the low productivity assumption employment is forecast to increase to 43,000 in 2050/51 without a second runway and GVA is forecast to be 2,564 million. With a second runway, employment is forecast to be between 49,200 and 61,800 in 2050/51 depending on the runway Scenario. GVA is forecast to be between 3,080 million and 4,060 million in 2050/51. Details are shown in Figure 1. Figure 1: Gatwick Related Employment and GVA by Scenario, 2050/51, Low Productivity Growth 10. In 2050/51, compared with the base case scenario, a second runway would generate additional employment of between 6,300 and 18,800. The additional employment associated with Scenario 2 is substantially less than the employment associated with Scenario 3 and 4. A similar result emerges for GVA with an additional 516 to 1,496 million with a second runway in 2050/51 compared to the base case. See Table 1 at the end of the summary. Results: High Productivity 11. Under the high productivity assumption employment is forecast to increase to 40,100 in 2050/51 without a second runway and GVA is forecast to be 2,973 million. With a second runway, employment is forecast to increase to between 46,500 and 58,100 in 2050/51 depending on the Scenario. GVA is forecast to be between 3,541 million and 4,628 million in 2050/51. Details are shown in Figure 2. 12. In 2050/51 the impact of a second runway on employment is estimated to be between 5,800 and 17,300. The additional employment associated with Scenario 2 is substantially less than the employment associated with Scenario 3 and 4. A similar result emerges for GVA with an additional 569 to 1,655 million with a second runway in 2050/51 compared to the base case. See Table 2 at the end of the summary. 2 Page 238

Figure 2: Gatwick Related Employment and GVA by Scenario, 2050/51, High Productivity Growth Table 1: Effect on Total Gatwick Related Employment and GVA of Second Runway Scenarios, Low Productivity Growth Employment Impact Relative to Scenario 1 Scenario 2 Scenario 3 Scenario 4 GVA, m Impact Relative to Scenario 1 2025/26 2030/31 2040/41 2050/51 3,100 6,200 6,500 6,300 4,200 8,300 13,700 13,800 4,900 9,800 17,700 18,800 2025/26 2030/31 2040/41 2050/51 Scenario 2 Scenario 3 Scenario 4 198 276 329 385 537 643 459 954 1,238 516 1,102 1,496 Source: Optimal Economics Note: All data have been rounded 3 Page 239

Table 2: Effect on Total Gatwick Related Employment and GVA of Second Runway Scenarios, High Productivity Growth Employment Impact Relative to Scenario 1 Scenario 2 Scenario 3 Scenario 4 GVA, m Impact Relative to Scenario 1 2025/26 2030/31 2040/41 2050/51 3,000 5,900 6,000 5,800 4,000 7,800 12,700 12,700 4,700 9,300 16,400 17,300 2025/26 2030/31 2040/41 2050/51 Scenario 2 Scenario 3 Scenario 4 204 284 338 402 560 671 493 1,026 1,330 569 1,219 1,655 Source: Optimal Economics Note: All data have been rounded 4 Page 240

Appendix 9 Air Quality Modelling R2 Scenarios Summary Prepared by Ricardo-AEA Page 241

Air Quality Modelling R2 Scenarios - Summary Gatwick Airport Report for Gatwick Airport Ricardo-AEA/R/3378 Issue Number 1 Draft Date 17/07/2013 Page 242

Air Quality Modelling R2 Scenarios -Summary Customer: Tom Denton, Gatwick Airport Ltd Customer reference: Confidentiality, copyright & reproduction: This report is the Copyright of Ricardo-AEA Ltd and has been prepared by Ricardo-AEA Ltd under contract to Gatwick Airport dated 14/01/2013. The contents of this report may not be reproduced in whole or in part, nor passed to any organisation or person without the specific prior written permission of Marc Addison, Commercial manager, Ricardo-AEA Ltd. Ricardo-AEA Ltd accepts no liability whatsoever to any third party for any loss or damage arising from any interpretation or use of the information contained in this report, or reliance on any views expressed therein. Contact: Charles Walker Ricardo-AEA Ltd Gemini Building, Harwell, Didcot, OX11 0QR t: 01235 753115 e: charles.walker@ricardo-aea.com Ricardo-AEA is certificated to ISO9001 and ISO14001 Author: Charles Walker Approved By: Gareth Horton Date: 17 July 2013 Signed: Ricardo-AEA reference: Ref: 3378- Issue Number 1 Draft Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 243

Air Quality Modelling R2 Scenarios -Summary Table of contents Abbreviations... ii 1 Introduction... 1 2 Scope... 2 3 Regulatory context... 3 4 Current air quality situation... 4 5 Methodology... 5 6 Results and Conclusions... 6 6.1 NO x emissions... 6 6.2 NO 2 concentrations... 7 6.3 PM Emissions... 8 6.4 PM 10 concentrations...10 6.5 PM 2.5 concentrations...11 Acknowledgements...11 References...12 Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 244 i

Air Quality Modelling R2 Scenarios -Summary Abbreviations ADMS Atmospheric Dispersion Modelling System AEI Average Exposure Index APU Auxiliary Power Unit AQMA Air Quality Management Area AQS The Air Quality Strategy for England, Scotland, Wales and Northern Ireland Defra Department for Environment, Food and Rural Affairs DfT Department for Transport EU European Union GAL Gatwick Airport Ltd GSE Ground Support Equipment LTO Landing and Take Off mppa Million passengers per annum NO Nitric oxide NO 2 Nitrogen dioxide NO x Nitrogen Oxides (NO and NO 2 ) PM 10 Particulate matter with aerodynamic diameter less than 10 µm PM 2.5 Particulate matter with aerodynamic diameter less than 2.5 µm PM Particulate matter (refers jointly to PM 10 and PM 2.5 ) PSDH Project for the Sustainable Development of Heathrow Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 245 ii

Air Quality Modelling R2 Scenarios -Summary 1 Introduction This report presents an assessment of the air quality in the vicinity of Gatwick Airport in the future, both for a single-runway airport as at present, and for a number of possible tworunway scenarios. The immediate motivation for this is the Airports Commission, chaired by Sir Howard Davies, which was set up to examine the need for additional UK airport capacity and recommend to government how this can be met in the short, medium and long term. Gatwick Airport Limited (GAL) wishes to make the case that Gatwick should be regarded as an option for runway examines the air quality effects of such a development. Air quality is a potential constraint on the growth of a large airport. However, this assessment shows that air quality is unlikely to be a constraint on a second runway at Gatwick in the future. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 246 1

Air Quality Modelling R2 Scenarios -Summary 2 Scope The current main case traffic forecasts show the single-runway Gatwick Airport reaching a maximum theoretical throughput of about 45 million passengers per annum (mppa) in the -runway airport will obviously be higher and will depend on the scenario. The scenarios considered are: Scenario 1 Base case Single runway. 309,783 movements, 45.77 mppa. Assessed for 2030, 2038 and 2042. Scenario 2 Close spaced runway operated in dependent segregated mode with existing runway. 385,082 movements, 56.80 mppa. Assessed for 2030. Scenario 3.1 Wide spaced runway operated in independent segregated mode with existing runway. 467,454 movements, 70.64 mppa. Assessed for 2038. Scenario 3.2 Wide spaced runway operated in independent segregated mode with existing runway. 467,454 movements, 70.64 mppa. Assessed for 2038. Scenarios 4.1 Wide spaced runway operated in independent mixed mode with existing runway. 521,235 movements, 79.86 mppa. Assessed for 2042. Scenario 4.2 Wide spaced runway operated in independent mixed mode with existing runway. 521,235 movements, 79.86 mppa. Assessed for 2042. Scenarios 3.1 and 3.2 differ in the details of the runway position and airport configuration, and Scenarios 4.1 and 4.2 likewise. Emissions of NO x, PM 10 and PM 2.5 are calculated, and concentrations of NO x, NO 2, PM 10 and PM 2.5 predicted. NO x is not a regulated pollutant but is a necessary component of the calculation, and is conventionally reported for comparison purposes and to provide source apportionment (which cannot be done for NO 2 ). Emissions are calculated for aircraft in the landing and take-off phases below 1000 m altitude, other on-airport sources, and landside roads on a specified network. Concentrations are calculated on a study area consisting of an 8 km 8 km square, centred on the airport, and at selected receptors. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 247 2

Air Quality Modelling R2 Scenarios -Summary 3 Regulatory context Local air quality in the UK is managed with reference to the Air Quality Strategy for England, Scotland, Wales and Northern Ireland (AQS) 1, which sets objectives for a number of pollutants. The AQS pollutants which have been identified as priority ones in an airport context 2 are NO 2, PM 10 and PM 2.5. Under Part IV of the Environment Act 1995, local authorities are required to review periodically the concentrations of the designated pollutants within their areas against air quality objectives in the AQS. Where it is likely that an objective cannot be met by the required date, the local authority has a duty to declare an Air Quality Management Area (AQMA) and to bring forward an Air Quality Action Plan to reduce concentrations, to the extent that the sources responsible for the problem are within its control. An AQMA was declared by Reigate and Banstead Borough Council in 2003 for the residential area of south Horley just north of the airport boundary, and another for a belt of land alongside the M23. The EU has set limit values for a number of pollutants, including NO 2, PM 10 and PM 2.5, which have been taken into UK law 2. Generally the AQS objectives align with EU Directives. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 248 3

Air Quality Modelling R2 Scenarios -Summary 4 Current air quality situation Concentrations of NO x and NO 2 are monitored continuously at sites close to Gatwick Airport. The sites RG1 and RG2 sit within the south Horley AQMA. Neither of the sites is roadside, but RG2 is representative of the residential properties closest to the northern boundary of the airport. LGW3 is on the airport, close to the eastern end of the runway and the airport perimeter. Although there is no relevant public exposure at LGW3, its location makes it a useful site for observing trends in on-airport emissions. RG3 is south of the airport, upwind of the airport along the prevailing south-westerly wind direction, so is useful for revealing the contribution from non-airport sources. Crawley 2 sits to the east of the airport downwind of the south-westerly wind direction. Over the last few years annual mean NO 2 concentrations have been below 34 µg m at all the off-airport monitoring stations. There is a general downward trend, although inter-annual variation is significant. Concentrations are highest at RG2, in the south Horley AQMA representative of properties closest to the airport. PM 10 concentrations are measured at two of the sites discussed above, RG1 and LGW3. A downward trend is perhaps detectable at RG1 though not at LGW3, but there are significant year-to-year fluctuations. The annual mean concentrations are well below the limit value (40 µg m ), but the statutory limit on the annual number of daily exceedances of a 24-hour mean concentration of 50 µg m (no more than 35) is generally more onerous. It is common practice to take an annual mean value of 31.5 µg m to be approximately equivalent to the shorter-period limit 3, and it is clear that the values at RG1 and LGW3 are well below this surrogate annual mean value. However, there is no evidence for a threshold on PM 10 (or PM 2.5 ) concentrations below which exposure can be deemed to have zero impact on health 4, so there is continuing interest in concentrations below the limit values. There are no continuous monitors for PM 2.5 near Gatwick Airport. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 249 4

Air Quality Modelling R2 Scenarios -Summary 5 Methodology The methodology used in this assessment is consistent with that used for recent air quality assessments for Gatwick Airport for 2005/6 5,6,7 and 2010 8, which in turn follow the (PSDH) 9. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 250 5

Air Quality Modelling R2 Scenarios -Summary 6 Results and Conclusions 6.1 NO x emissions Table 1 shows the estimated annual on-airport NO x emissions for each scenario as a function of major source category. The equivalent values for 2010 are also given. Table 1: NO x emission rate (tonne/year) by source category (a) 2010 and 2030 Source category NO x emission rate (tonnes/year) 2010 S1 (2030) S2 (2030) Airport Aircraft elevated a 806.75 1050.51 1305.77 Aircraft ground b 471.24 526.90 814.51 GSE 118.18 25.42 31.55 Road network c,d 141.55 58.85 65.77 Car parks 6.89 3.85 4.64 Stationary sources e 24.62 Non-airport Road network f,g 271.05 143.34 141.43 (b) 2038 Source category NO x emission rate (tonnes/year) S1 (2038) S3.1 S3.2 Airport Aircraft elevated a 1021.76 1555.86 Aircraft ground b 513.97 929.28 904.67 GSE 21.38 33.00 Road network c,d 64.34 76.58 Car parks 3.89 5.72 5.43 Stationary sources e 24.62 Non-airport Road network g 152.05 144.58 Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 251 6

Air Quality Modelling R2 Scenarios -Summary (c) 2042 Source category NO x emission rate (tonnes/year) S1 (2042) S4.1 S4.2 Airport Aircraft elevated a 1009.44 1767.39 Aircraft ground b 508.50 1005.13 998.91 GSE 21.31 37.18 Road network c,d 64.34 76.86 Car parks 3.90 5.97 5.77 Stationary sources e 24.62 Non-airport Road network g 152.05 145.64 a From wheels off to 1000 m above ground (departure) and from 1000 m to touchdown (arrival) b Emissions from aircraft on the ground, including main engines, APU and engine testing emissions c Total for airport-related trips within the 10 km (E-W) 8 km (N-S) rectangular road network area (2010 only) d Total for airport-related trips within the 10 km (E-W) 10 km (N-S) rectangular road network area e Includes heating plant emissions and fire training ground emissions f Total for non-airport trips within the 10 km (E-W) 8 km (N-S) rectangular road network area (2010 only) g Total for non-airport trips within the 10 km (E-W) 10 km (N-S) rectangular road network area Clearly, aircraft make the dominant contribution to airport NO x emissions, but it should be borne in mind that this is for aircraft emissions in the LTO cycle (cruise emissions are excluded as having no impact on local air quality) and road emissions are presented only on roads within the 10 km 10 km area around the airport (10 km 8 km for 2010). Choosing a larger road network area would change the balance of calculated emissions. For all scenarios the increase in aircraft NO x emissions compared with 2010 is less than the increase in passengers, but broadly in line with the increase in movements. Turning to road vehicles, the estimated NO x emissions from airport-related traffic on the road network are about 45-60% lower than 2010 depending on scenario, but it should be borne in mind that the 2010 network covered a smaller area (10 km 8 km) than the future cases (10 km 10 km). Airport-related NO x emissions per passenger on the road network are about 70-80% lower than 2010 depending on scenario. This is despite the enlarged network for the future cases and reflects the tightening of road vehicle emission standards. The estimated NO x emissions from non-airport traffic on the network are about 40-50% lower than 2010 depending on scenario despite the enlarged network for the future cases. This reflects the tightening of road vehicle emission standards, which outweighs any growth in background traffic. 6.2 NO 2 concentrations For all scenarios, annual mean NO 2 concentrations are forecast to be below 36 µg m (i.e. more than 10% below the annual mean limit value) at all of the off-airport discrete receptor locations modelled, including those within the AQMAs in Horley and adjacent to the M23. Forecast annual mean NO 2 concentrations at the monitoring sites within the Horley AQMA are shown in Table 2, and Table 3 shows forecast annual mean NO 2 concentrations at the monitoring site within the AQMA adjacent to the M23. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 252 7

Air Quality Modelling R2 Scenarios -Summary Table 2 Annual mean NO 2 concentrations within the Horley AQMA (µg m ) Scenario 1 2 3.1 3.2 4.1 4.2 Year 2030 2038 2042 2030 2038 2038 2042 2042 RG1 24.92 25.39 25.61 26.10 26.49 25.80 26.54 26.86 RG2 28.58 29.07 29.30 29.75 30.40 29.09 30.17 30.54 Table 3 Annual mean NO 2 concentrations within the AQMA adjacent to the M23 (µg m ) Scenario 1 2 3.1 3.2 4.1 4.2 Year 2030 2038 2042 2030 2038 2038 2042 2042 M23 27.61 28.45 28.71 28.71 30.61 30.60 31.44 31.46 For Scenario 2, CBC48 shows a slightly beneficial impact relative to scenario 1 (as defined by Environmental Protection UK technical guidance 10 ) due to the relocation of the A23. All other discrete off-airport receptor locations modelled show a negligible impact. For all wide spaced options the only off-airport discrete receptor locations modelled that show non-negligible impacts relative to scenario 1 are Crawley 2 and CR4, which show a slightly adverse impact due to their proximity to the realigned terminal access roads. All other off-airport discrete receptor locations modelled show a negligible impact. In summary, NO 2 concentrations at all of the off-airport discrete receptor locations modelled are comfortably below the annual mean limit value for all scenarios. For all scenarios, the contour plots show that annual mean NO 2 concentrations in Langley Green and at any remaining properties in Tinsley Green for the two-runway options are below 36 µg m (i.e. more than 10% below the annual mean limit value). Off-airport annual mean NO 2 concentrations in excess of 40 µg m are restricted to areas close to roads and do not encroach on residential areas. For all two-runway options, the only areas showing an adverse impact relative to scenario 1 will be close to new roads. 6.3 PM Emissions Table 4 shows the estimated annual PM 10 and PM 2.5 (collectively referred to as PM) emissions for each scenario as a function of major source category. The equivalent values for 2010 are also given. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 253 8

Table 4: PM emission rate (tonne/year) by source category (a) 2010 and 2030 Source category PM 10 emission rate 2010 (tonnes/year) S1 (2030) Air Quality Modelling R2 Scenarios -Summary S2 (2030) PM 2.5 emission rate 2010 (tonnes/year) S1 (2030) S2 (2030) Airport Aircraft elevated a 3.75 8.62 10.71 3.75 8.62 10.71 Aircraft ground b 11.08 11.52 17.14 9.11 8.83 13.79 GSE 7.78 3.93 4.88 6.36 2.19 2.71 Road network c,d 14.00 17.52 19.86 8.60 9.25 10.49 Car parks 0.60 0.62 0.76 0.43 0.43 0.53 Stationary sources e 0.38 0.38 Non-airport Road network f,g 29.76 43.59 43.01 19.04 23.22 22.92 (b) 2038 PM 10 emission rate PM 2.5 emission rate (tonnes/year) (tonnes/year) Source category S1 S1 S3.1 S3.2 S3.1 S3.2 (2038) (2038) Airport Aircraft elevated a 8.60 12.76 8.60 12.76 Aircraft ground b 11.51 19.73 19.33 8.82 15.51 15.11 GSE 3.62 5.58 1.95 3.01 Road network c,d 19.29 24.75 10.18 13.07 Car parks 0.62 1.01 0.90 0.43 0.67 0.62 Stationary sources e 0.38 0.38 Non-airport Road network g 46.57 45.42 24.81 24.18 Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 254 9

Air Quality Modelling R2 Scenarios -Summary (c) 2042 Source category PM 10 emission rate S1 (2042) (tonnes/year) S4.1 S4.2 PM 2.5 emission rate S1 (2042) (tonnes/year) S4.1 S4.2 Airport Aircraft elevated a 8.60 14.48 8.60 14.48 Aircraft ground b 11.51 21.67 21.56 8.82 16.84 16.73 GSE 3.62 6.31 1.95 3.40 Road network c,d 19.29 25.40 10.18 13.35 Car parks 0.62 1.00 0.93 0.43 0.68 0.65 Stationary sources e 0.38 0.38 Non-airport Road network g 46.57 47.26 24.81 25.02 a From wheels off to 1000 m above ground (departure) and from 1000 m to touchdown (arrival) b Emissions from aircraft on the ground, including main engines, APUs, engine testing, brake wear and tyre wear c Total for airport-related trips within the 10 km (E-W) 8 km (N-S) rectangular road network area (2010 only) d Total for airport-related trips within the 10 km (E-W) 10 km (N-S) rectangular road network area e Includes heating plant emissions and fire training ground emissions f Total for non-airport trips within the 10 km (E-W) 8 km (N-S) rectangular road network area (2010 only) g Total for non-airport trips within the 10 km (E-W) 10 km (N-S) rectangular road network area Focusing on airport sources, aircraft emissions are not as dominant for PM as for NO x. It is worth noting that the estimated brake and tyre wear emissions are an important contributor to ground-level PM emissions, although the pertinent emission factors are subject to significant uncertainties. 6.4 PM 10 concentrations For all scenarios annual mean PM 10 concentrations are forecast to be considerably below the 40 µg m annual mean limit value at all the discrete receptor locations modelled. Furthermore, annual mean PM 10 concentrations are forecast to be considerably below 31.5 µg m, which is approximately equivalent to the more onerous 24 hour mean objective of 50 µg m not to be exceeded more than 18 times per year. Forecast annual mean PM 10 concentrations at the monitoring sites within the Horley AQMA are shown in Table 5, and Table 6 shows forecast annual mean PM 10 concentrations at the monitoring sites within the AQMA adjacent to the M23. Table 5 Annual mean PM 10 concentrations within the Horley AQMA (µg m ) Scenario 1 2 3.1 3.2 4.1 4.2 Year 2030 2038 2042 2030 2038 2038 2042 2042 RG1 18.90 18.96 18.96 18.97 18.94 18.95 19.03 19.04 RG2 19.55 19.64 19.64 19.63 19.61 19.61 19.83 19.85 Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 255 10

Air Quality Modelling R2 Scenarios -Summary Table 6 Annual mean PM 10 concentrations within the AQMA adjacent to the M23 (µg m ) Scenario 1 2 3.1 3.2 4.1 4.2 Year 2030 2038 2042 2030 2038 2038 2042 2042 M23 21.38 21.60 21.60 21.75 22.33 22.33 23.37 23.38 Contour plots also show that off-airport annual mean PM 10 concentrations in excess 31.5 µg m are restricted to areas very close to the carriageways of major roads and do not encroach on residential areas. 6.5 PM 2.5 concentrations For all scenarios annual mean PM 2.5 concentrations are forecast to be considerably below both the 25 µg m annual mean limit value and the 20 µg m stage 2 indicative limit value at all the discrete receptor locations modelled. Forecast annual mean PM 2.5 concentrations at the monitoring sites within the Horley AQMA are shown in Table 7, and Table 8 shows forecast annual mean PM 2.5 concentrations at the monitoring sites within the AQMA adjacent to the M23 Table 7 Annual mean PM 2.5 concentrations within the Horley AQMA (µg m ) Scenario 1 2 3.1 3.2 4.1 4.2 Year 2030 2038 2042 2030 2038 2038 2042 2042 RG1 12.02 12.05 12.05 12.07 12.04 12.04 12.09 12.10 RG2 12.38 12.42 12.42 12.42 12.40 12.39 12.51 12.53 Table 8 Annual mean PM 2.5 concentrations within the AQMA adjacent to the M23 (µg m ) Scenario 1 2 3.1 3.2 4.1 4.2 Year 2030 2038 2042 2030 2038 2038 2042 2042 M23 13.25 13.37 13.37 13.45 13.76 13.76 14.25 14.25 Contour plots also show that off-airport annual mean PM 2.5 concentrations in excess of 20 µg m are restricted to areas very close to the carriageways of major roads and do not encroach on residential areas. Acknowledgements The authors thank Tom Denton, Patricia Reid, Richard Higgins, Sandra Diaz and Leon Hibbs. Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 256 11

Air Quality Modelling R2 Scenarios -Summary References 1 Defra (2007) The Air Quality Strategy for England, Scotland, Wales and Northern Ireland. Cm 7169 NIA 61/06-07. 2 HMSO (2010) The Air Quality Standards Regulations 2010, Statutory Instrument 2010 No. 1001. 3 Defra (2009) Part IV of the Environment Act 1995 Environment. (Northern Ireland) Order 2002 Part III. Local Air Quality Management. Technical Guidance. LAQM.TG(09) February 2009. 4 COMEAP (2009) Long-Term Exposure to Air Pollution: Effect on Mortality. Committee on the Medical Effect of Air Pollutants. 5 Underwood B Y, Walker C T and Peirce M J (2008) Gatwick Emission Inventory 2005/6. AEAT/ENV/R/2395 6 Underwood B Y, Walker C T and Peirce M J (2009) Gatwick Air Quality Modelling with ADMS- Airport. AEAT/ENV/R/2671 7 Underwood B Y, Walker C T and Peirce M J (2009) Gatwick Airport Air Quality Modelling for 2005/6: Results and Model Evaluation. AEAT/ENV/R/2689 8 Peace H and Walker C T (2012) Gatwick Airport emissions inventory and air quality modelling for 2010. Ricardo-AEA/R/3347 9 DfT (2006) Project for the Sustainable Development of Heathrow: Report of the Airport Air Quality Technical Panels. 10 Environmental Protection UK (2010) Development Control: Planning For Air Quality (2010 Update) Ref: Ricardo-AEA/R/3378/Issue Number 1 Draft Page 257 12

Page 258

The Gemini Building Fermi Avenue Harwell Didcot Oxfordshire OX11 0QR Tel: 01235 753000 Fax: 01235 753001 www.ricardo-aea.com Page 259

Appendix 10 R2 Options Carbon Modelling Summary Report Prepared by RSK Page 261

Gatwick Airport Ltd R2 Options Carbon Modelling Summary Report 441257R(01) 17 TH JUNE 2013 Page 262

RSK GENERAL NOTES Project No.: 441257 Title: R2 Options Carbon Modelling Summary Report Client: Gatwick Airport Ltd Date: 17 th June 2013 Author Joseph Norton Technical reviewer Brian Lewis Signature Signature RSK Environment (RSK) has prepared this report for the sole use of the client, showing reasonable skill and care, for the intended purposes as stated in the agreement under which this work was completed. The report may not be relied upon by any other party without the express agreement of the client and RSK. No other warranty, expressed or implied, is made as to the professional advice included in this report. Where any data supplied by the client or from other sources have been used, it has been assumed that the information is correct. No responsibility can be accepted by RSK for inaccuracies in the data supplied by any other party. The conclusions and recommendations in this report are based on the assumption that all relevant information has been supplied by those bodies from whom it was requested. No part of this report may be copied or duplicated without the express permission of RSK and the party for whom it was prepared. Where field investigations have been carried out, these have been restricted to a level of detail required to achieve the stated objectives of the work. This work has been undertaken in accordance with the quality management system of RSK. Gatwick Airport Ltd R2 Options Carbon Modelling Summary Report 441257R(01) ii Page 263

R2 Carbon Modelling Results Emissions Scope & Source 2040 Base Case No R2 Emissions (tco 2 e) 2040 Option 1 R2 CS DS 2040 Option 2 R2 WS IS 2040 Option 3 R2 WS IM Gas 14,006.5 17,741.5 22,099.1 24,900.4 Scope 1 Fuel 2,774.8 3,514.7 4,378.0 4,933.0 Refrigerants 2,578.0 3,265.4 4,067.4 4,583.0 Sub-total 19,359.2 24,521.7 30,544.5 34,416.4 Scope 2 Electricity 53,335.2 67,557.9 84,151.1 94,818.2 Sub-total 53,335.2 67,557.9 84,151.1 94,818.2 3 rd Party Gas 555.0 703.0 875.7 986.7 3 rd Party Fuel 8,406.9 10,648.7 13,264.2 14,945.6 3 rd Party Electricity Water & Wastewater 28,179.4 35,693.9 44,460.8 50,096.7 1,060.3 1,343.1 1,673.0 1,885.0 Scope 3 Waste 924.6 1,171.2 1,458.8 1,643.8 Business Travel 52.1 59.2 67.0 71.2 Staff Commuting 58,706.3 66,660.0 75,488.3 80,239.2 Passenger Transport 251,163.3 318,140.2 396,279.9 446,512.5 Aircraft 442,196.0 635,119.0 733,800.0 820,831.0 Sub-total 762,151.3 1,072,728.5 1,267,529.2 1,419,017.8 Total 832,698.6 1,172,905.6 1,386,430.4 1,533,413.3 Emissions Scope Emissions per Passenger (tco 2 e/passenger) Scope 1 0.0004 0.0004 0.0004 0.0004 Scope 2 0.0013 0.0013 0.0012 0.0012 Scope 1 & 2 0.0018 0.0018 0.0017 0.0017 Scope 3 0.0191 0.0189 0.0180 0.0178 All Scopes 0.0208 0.0206 0.0196 0.0195 Gatwick Airport Ltd 3 R2 Options Carbon Modelling Summary Report 441257R(01) Page 264

COMMENTARY Greenhouse gas (GHG) emissions have been calculated for the four R2 scenarios by using methodology that has been applied for calculating Gatwick Airport s Carbon Footprint since 2009, together with forecasts on future aircraft fleet mix, GAL employees and passenger surface transport provided by GAL s consultant team. Scope 1 Consists primarily of emissions from the combustion of mains gas by GAL. A reasonable worst case approach has been adopted in relation to gas consumption for the scenarios involving new terminal buildings. It will be possible to refine the accuracy of these estimates when more details on the buildings becomes available. Scope 2 Consists primarily of emissions associated from the generation of main electricity consumed by GAL represents around 6.3% to 6.4% of the total footprint for each scenario. Again it will be possible to more accurately estimate emissions from this element should further details be available on new terminal buildings. Scope 3 Include emissions from aircraft movements from 1,000m altitude on approach to 1,000m altitude on departure and all activities between. The scenarios which facilitate a greater number of larger and more fuel-efficient aircraft result in reduced emissions per passenger. Scope 3 also includes emissions from passenger surface access and from commuting by the staff employed at Gatwick Airport. Summary Whilst total GHG emissions are predicted to increase across each of the four scenarios, this increase is accompanied by progressively greater passenger capacity. As a result, carbon emissions per passenger can be seen to reduce in each scenario, from 0.0239 tco 2 e in Scenario 1 (no second runway) to 0.0195 tco 2 e in Scenario 4 (wide-spaced in independent mixed mode with the existing runway), a carbon efficiency improvement of 18.4%. Gatwick Airport Ltd 4 R2 Options Carbon Modelling Summary Report 441257R(01) Page 265

Appendix 11 Summary Report Air Noise Contours for Gatwick Airport R2 Scenarios Prepared by the CAA Page 267

Environmental Research and Consultancy Department Civil Aviation Authority SUMMARY REPORT: Air Noise Contours for Gatwick Airport R2 Scenarios Prepared by the Civil Aviation Authority on behalf of Gatwick Airport Ltd, July 2013 Page 268

SUMMARY REPORT: Air Noise Contours for Gatwick Airport R2 Scenarios Introduction The Environmental Research and Consultancy Department (ERCD) of the Civil Aviation Authority (CAA) was commissioned by Gatwick Airport Ltd (GAL) to model forecast noise exposure contours for the Gatwick second runway (R2) scenarios. The noise metrics used for the contours are the annual L den and average summer day L Aeq,16hr. The contours show the take-off and landing roll. Noise from ground-based activities such as aircraft taxiing and engine testing (elsewhere. The following R2 options were modelled for this study: Scenario 1 Base case with single runway (year 2030); Scenario 2 Close spaced runway operated in dependent segregated mode with existing runway (year 2030); Scenario 3 Wide spaced runway operated in independent segregated mode with existing runway (year 2038); and Scenario 4 Wide spaced runway operated in independent mixed mode with existing runway (year 2042). Noise modelling assumptions The noise contours were calculated with the UK civil aircraft noise model ANCON (version 2.3), which is developed and maintained by ERCD on behalf of the Department for Transport (DfT). The base case single runway option (Scenario 1) was modelled with the summer 2011 mean flight tracks and lateral dispersions, and average height/speed/thrust profiles, for both departures and arrivals. For Scenarios 2-4, new flight track layouts were provided by NATS. Departure track dispersions were based on summer 2011 data previously analysed for existing Gatwick SIDs. All a - centrelines. Average flight profiles of height, speed and thrust were all based on summer 2011 data. Forecast aircraft movement data were supplied by ICF SH&E for the annual day, evening and night and average summer day periods. The contours were modelled with long-term average runway modal splits. For the annual 24-hour period, the average runway split based on data recorded over the 10-year period 2003-2012 was 68% west / 32% east. For the summer 16-hour day period, the 2012 standardised (20-year average) modal split of 74% west / 26% east was assumed. Contour results Tables 1&2 summarise the estimated areas, populations and households enclosed within the annual L den contours at levels 54 and 57 db respectively, whilst Tables 3&4 show the results for the 54 and 57 db L Aeq,16hr summer noise contours (all using a 2012 population database updated from the 2001 Census, supplied by CACI Ltd). Page 269

Table 1 54 db L den areas, populations and households Scenario Area (km 2 ) Population Households (thousands) (thousands) 1 - Base Case single runway (year 2030) 106.5 15.3 6.3 2 - Close Spaced Runway, Dependent Segregated Mode (year 2030) 3 - Wide Spaced Runway, Independent Segregated Mode (year 2038) 4 - Wide Spaced Runway, Independent Mixed Mode (year 2042) 139.6 21.3 8.7 160.2 37.3 15.2 184.8 42.8 17.5 Table 2 57 db L den areas, populations and households Scenario Area (km 2 ) Population Households (thousands) (thousands) 1 - Base Case single runway (year 2030) 59.6 6.9 2.9 2 - Close Spaced Runway, Dependent Segregated Mode (year 2030) 3 - Wide Spaced Runway, Independent Segregated Mode (year 2038) 4 - Wide Spaced Runway, Independent Mixed Mode (year 2042) 72.5 7.2 2.9 85.7 15.3 6.3 99.8 22.3 9.1 Table 3 54 db L Aeq,16hr areas, populations and households Scenario Area (km 2 ) Population Households (thousands) (thousands) 1 - Base Case single runway (year 2030) 72.8 8.6 3.7 2 - Close Spaced Runway, Dependent Segregated Mode (year 2030) 3 - Wide Spaced Runway, Independent Segregated Mode (year 2038) 4 - Wide Spaced Runway, Independent Mixed Mode (year 2042) 91.4 10.2 4.2 104.6 20.1 8.2 120.1 27.0 11.1 Table 4 57 db L Aeq,16hr areas, populations and households Scenario Area (km 2 ) Population Households (thousands) (thousands) 1 - Base Case single runway (year 2030) 39.2 3.4 1.5 2 - Close Spaced Runway, Dependent Segregated Mode (year 2030) 3 - Wide Spaced Runway, Independent Segregated Mode (year 2038) 4 - Wide Spaced Runway, Independent Mixed Mode (year 2042) 47.8 3.3 1.4 58.7 7.4 3.0 65.6 11.8 4.8 Page 270

Appendix 12 Summary Assesment of Second Runway Options Ground Noise Impacts Prepared by Ian H Flindell & Seth J Roberts Page 271

GATWICK AIRPORT Summary assessment of second runway options Ground noise impacts 11 th June 2013 Ian H Flindell 1 Seth J Roberts 2 1 Ian H Flindell & Associates, Beechwood, Middleton, Middle Winterslow, Salisbury SP5 1RD 2 Hayes McKenzie Partnership Limited, Unit 3, Oakridge Office Park, Whaddon, Salisbury SP5 3HT Page 272

Gatwick Second Runway Ground noise impacts The airport ground noise contours reproduced in Appendix X show aircraft taxiing noise and APU noise sound levels for five options as follows; Option 2 close spaced with no aprons or stands in between the north and south runways and an increased number of stands in the NW zone Option 3.1 medium spaced with a new terminal in between the north and south runways at the eastern end Option 3.2 medium spaced with more stands in between the north and south runways. A new terminal building east of the railway line and an increased number of stands in the NW zone Option 4.1 the widest spaced option with a toast-rack of north south remote piers in between the north and south runways Option 4.2 slightly narrower wide spaced with east-west remote piers in between the north and south runways and what appears to be the most extensive NW zone development Summary assessment starting at Charlwood and going clockwise around the airport Charlwood None of the options have any major effects in the centre of Charlwood, but the various proposed western taxiway options will all increase ground noise in west Charlwood, depending on the extent to which they are actually used. The wide spaced options will presumably require fewer north-south taxiway transfers with less frequent taxiing noise events and restrictions on use at sensitive times could be beneficial. Povey Cross The main effects here depend on the proposed increases in the numbers of NW stands under the different options, and the extent to which they are used, particularly at night. These effects could be minimised by designating those stands which are nearest to the residential areas in Povey Cross for towed on and off remote parking with no APU running at sensitive times. Horley Most of the ground noise in Horley comes from the North Terminal and North Satellite aprons and taxiways and unless the operations here are substantially changed under any of the proposed options, whatever happens on more distant parts of the airport would have little effect. North Crawley and Ifield The geographical extent of ground noise to the south mainly depends on the spacing of the second runway, but this also removes areas from residential exposure as they become included within the new airport boundary. For the widest spaced options ground noise may start to become significant in parts Page 273

of North Crawley and Ifield which are not significantly affected by ground noise at present. Additional mitigation will be required. Overview From this preliminary assessment, while the geographical areas affected by ground noise under all options considered will extend further from the airport than they do at present, with appropriate mitigation in place and considered within the context of the many other changes in road traffic noise, air noise, etc. which would also occur, there is no reason to believe that any of the considered options would be unacceptable in terms of ground noise impacts. Page 274

Appendix 13 Outline Proposals for Long Term Options at Gatwick Designated Sites and Other Local Sites and Features Prepared by RPS Page 275

OUTLINE PROPOSALS FOR LONG TERM OPTIONS AT GATWICK DESIGNATED SITES AND OTHER LOCAL SITES AND FEATURES 15 July 2013 Our Ref: JLP0061 RPS 14 Cornhill London EC3V 3ND Page 276 rpsgroup.com

QUALITY MANAGEMENT Prepared by: Angela Schembri Authorised by: David Cowan Date: 15 July 2013 Project Number/Document Reference: OXF8027/Designated Sites Report COPYRIGHT RPS The material presented in this report is confidential. This report has been prepared for the exclusive use of Gatwick Airport Limited and shall not be distributed or made available to any other company or person without the knowledge and written consent of RPS. Page 277 rpsgroup.com

CONTENTS EXECUTIVE SUMMARY... I 1 INTRODUCTION... 1 2 METHODOLOGY... 3 3 INTERNATIONALLY AND NATIONALLY DESIGNATED SITES... 6 4 OTHER LOCAL SITES AND FEATURES... 8 Figures Figure 1 - Internationally and Nationally Designated Sites Figure 2 - Other Local Features: Environmental Figure 3 - Other Local Features: Local Plan Policies Appendices Appendix 1 - Internationally and Nationally Designated Sites Appendix 2 - Other Local Sites and Features ; Appendix 3 - European and National Nature Conservation Designations Appendix 4 - Local Nature Reserves Appendix 5 - Listed Buildings within the Safeguarded Area and Existing Airport Page 278 rpsgroup.com

EXECUTIVE SUMMARY The Airports Commission has published guidance on the information it requires to make informed recommendations on the most credible long term options for maintaining the UK s connectivity through its airports. The Commission s Guidance Document 02 Long Term Capacity Options: Sift Criteria (May 2013) includes 8 main categories of criteria one of which is Environment. The Environment category includes two sub-categories that are considered in this report: Designated Sites and Other (local environmental impacts). Table 1.1 in the Commission s Guidance Document 02 identifies these sub-categories as follows: Designated Sites: Does the proposal affect any designated sites (for example Sites of Scientific Interest or Special Protection Areas) and if so how might any effects be managed? Other: Are there other significant local environmental impacts which should be taken into account? This report has been prepared by RPS on behalf of Gatwick Airport Limited (GAL) to include the information required by the Commission with respect to designated sites and other local sites and features that might be affected by long term options at Gatwick. In 2003, the Air Transport White Paper concluded that additional capacity at Gatwick would be very attractive to passengers, was supported by a strong economic case and that a new runway at Gatwick should be kept available as an option. The policy, which remains in place today, led to the formal safeguarding of over 550 hectares of land to the south of the airport and north of the town of Crawley. This policy has protected the safeguarded area from development that would be incompatible with the development of the Second Runway. The internationally and nationally designated nature conservation sites identified in the Airports Commission s sift criteria and other nationally designated heritage assets found in the vicinity of Gatwick airport are identified in this report and shown on the figure below. i Page 279 rpsgroup.com

Figure 1 (Extract): Internationally and Nationally Designated Sites With the exception of eighteen listed buildings, there are no sites designated at the national level or above within the safeguarded area and nor does it impinge upon significant areas of land in the Green Belt. International and national designations have also been identified up to 15km from the airport. GAL will continue to assess potential effects on these designations during the development of the draft proposals. However, having regard to the location of the sites and the orientation of the runways, effects on these sites do not appear to be a constraint on the feasibility of runway options in the safeguarded area. Local sites and features within the safeguarded area and existing airport are also identified in this report and include: six areas of woodland, two of which are also identified in local plans as Sites of Nature Conservation Importance (SNCI); one other SNCI, part of which has also recently been designated as a Local Nature Reserve; a section of the Sussex Border Path; three sites identified as archaeologically sensitive areas; and three watercourses in the upper reaches of the River Mole catchment. ii Page 280 rpsgroup.com

The effects of the proposal and any mitigation that might be required for local sites and features cannot be determined until further work is completed on the draft proposals and their likely development boundaries. GAL will continue to update its assessments of other local environmental impacts and appropriate mitigation measures in accordance with the Commission s sift criteria and any further guidance during the development of the draft proposals. However, with appropriate mitigation, none of the local sites and features that may be affected is likely to be a constraint on the development of a second runway. iii Page 281 rpsgroup.com

1 INTRODUCTION 1.1 This report has been prepared by RPS for Gatwick Airport Limited (GAL). It supports Gatwick Airport s outline proposals for long term options being made to the Airports Commission in July 2013 with respect to designated sites and other local sites and features. 1.2 The Airports Commission has published guidance on the information it requires to make informed recommendations on the most credible long term options for maintaining the UK s connectivity through its airports. The Commission s Guidance Document 02 Long Term Capacity Options: Sift Criteria (May 2013) includes 8 main categories of criteria one of which is Environment. 1.3 The Environment category includes Designated Sites as one of five sub-categories. Table 1.1 in the Commission s Guidance Document 02 identifies the Designated Sites sub-category as follows: Designated Sites: Does the proposal affect any designated sites (for example Sites of Scientific Interest or Special Protection Areas) and if so how might any effects be managed? 1.4 Paragraph 3.17 of the Commission s Guidance Document 02 states: The Commission is keen to understand the impacts of proposals upon any designated environmental sites. These may include, for example Sites of Special Scientific Interest, Special Areas of Conservation or Ramsar sites amongst others 5. Where a proposal might have implications for any designated site, proposers should document this in their submission, and set out any measures they would put in place to mitigate these effects. It should be noted that effects may not be restricted to designated sites in the immediate vicinity of the proposed site for new capacity. Scheme proposers should consider where appropriate the relevant environmental regulations and directives governing this area. Proposers should clearly state the assumptions they have made and assess whether any residual impacts may remain following mitigation. 5 For more detail on designated sites, see the Natural England website at: http://www.naturalengland.org.uk/ourwork/conservation/designations/ 1.5 The next section of this report sets out what designated sites may be affected by the long term options proposed at Gatwick Airport and how they were identified, including the data sources used to obtain information on the sites and their location. 1.6 The five Environment sub-categories in Table 1.1.of GD02 also include Other (local Impacts) as follows: Other: Are there other significant local environmental impacts which should be taken into account? 1.7 At paragraph 3.18 the Commission explains that this sub-category can include: 1 Page 282 rpsgroup.com

impacts on landscape and/or townscape, water availability and flooding, biodiversity or historical and archaeological sites. In considering potential environmental impacts, scheme developers may wish to have reference to the factors set out in DEFRA s Sustainable Development Indicators. 1.8 Other local sites and features have also been identified as set out in section 4 of this report. 2 Page 283 rpsgroup.com

2 METHODOLOGY 2.1 A number of sources have been used to define and identify the designated sites that have been considered in this report. These are listed below: Designated Sites Referenced on the Natural England Website 2.2 The Natural England information contained at this reference identifies the main designations contributing to Natural England's purposes as follows: Sites of Special Scientific Interest (SSSI) Special Areas of Conservation (SAC) Special Protection Areas (SPA) National Parks Areas of Outstanding Natural Beauty (AONB) National Nature Reserves (NNR) Ramsar Sites Marine Conservation Zones (MCZs) National Trails. 2.3 Another table is also provided containing other designations contributing to Natural England s purposes as follows: Heritage Coasts World Heritage Sites Marine Nature Reserves Local Nature Reserves (LNR) Local Sites Global Geoparks Biosphere Reserves. 2.4 In both cases, information on the purposes of these designations is also provided. National Planning Policy Framework 2.5 RPS also recommended that GAL had regard to guidance in the National Planning Policy Framework (NPPF) March 2012. Paragraph 14 of the NPPF sets out the key strands of the 3 Page 284 rpsgroup.com

presumption in favour of sustainable development that is central to the Government s approach to land use planning in England. The specific policies where restrictions to development should apply are identified there as follows: sites protected under the Birds and Habitats Directives Sites of Special Scientific Interest Green Belt Local Green Space 1 National Parks (or the Broads Authority) Areas of Outstanding Natural Beauty Heritage Coast Designated Heritage Assets Locations at risk of flooding or coastal erosion. Airports Commission Guidance Document 02: Long Term Capacity Options: Sift Criteria (May 2013) 2.6 The examples of Designated Sites given by the Commission are Sites of Special Scientific Interest, Special Areas of Conservation or Ramsar sites ie. national or international designations. 2.7 Other impacts on landscape and/or townscape, water availability and flooding, biodiversity or historical and archaeological sites are identified in the separate sub-category of Other Local Environmental Impacts (paragraph 3.18). Designations Included in this Report 2.8 RPS concluded from the Airport s Commission Guidance Document 02 (paragraph 3.17) and the other considerations set out above that the Designated Sites criterion should relate to the main national and international designations contributing to Natural England s purposes (as referenced on the Natural England website), other nationally designated sites and the Green Belt. 2.9 The designated sites within these categories on which data was collected are listed in Appendix 1 and the results are discussed in section 3 of this report. Other Local Sites and Features 2.10 The other locally designated sites and features and watercourses and flood plains are discussed in section 4 of this report. The sites and features investigated and the data sources used are listed in Appendix 2. 1 Local Green Space is yet to be a statutory designation. No LGS has yet been designated in our Gatwick study area. 4 Page 285 rpsgroup.com

Data Collection 2.11 As possible development layouts with site boundaries are not being submitted at this outline proposal stage, data was collected on designated sites within 6km of a point within the existing airport in order that any effects within the immediate vicinity could be assessed. 2.12 It is noted in paragraph 3.17 of the Airport s Commission Guidance Document 02 that the effects of proposals on some designated sites may not be restricted to sites in the immediate vicinity. Data collection was therefore extended over two zones, to 10km and 15km for internationally and nationally designated sites where there might be an effect at greater distances. 5 Page 286 rpsgroup.com

3 INTERNATIONALLY AND NATIONALLY DESIGNATED SITES 3.1 The internationally and nationally designated nature conservation sites identified in the Airports Commission s sift criteria and other nationally designated heritage assets found in the vicinity of Gatwick airport are shown on Figure 1. The data sources and full list of international and national designations investigated are given at Appendix 1. 3.2 With the exception of the listed buildings identified below, the safeguarded area does not affect any sites designated at the national level or above, nor does it impinge upon significant areas of land in the Green Belt. 3.3 GAL will continue to assess potential effects on designated sites during the development of the draft proposals. However, having regard to the location of the sites and the orientation of the runways, effects on these designated sites do not appear to be a constraint on the feasibility of the main runway options. Nature Conservation Designations 3.4 No internationally or nationally designated habitats would be directly affected by any of the runway options being considered. The closest sites of international importance to the airport are the Mole Gap to Reigate Escarpment. Special Area of Conservation (SAC), 9.5km to the north of the airport and Ashdown Forest, 12km to the south east, a Special Protection Area (SPA) and SAC. Considering the distance of these protected sites from the airport, and the east-west alignment of the second runway, these sites are unlikely to be adversely affected by any consequential increases in air noise, emissions or other impacts. This assertion will be tested in due course through further study and the screening of the preferred option against the Habitats Regulations. 3.5 The nearest nationally designated site is Glovers Wood SSSI, which is just beyond the village of Charlwood, 1.7km to the west of the airport. There are a number of other SSSIs about 5km from the airport the closest being House Copse and Buchan Hill Ponds situated some 4.3km and 4.9km from the airport respectively, both to the south/south west, and Hedgecourt, approximately 4.9km to the east. None of these SSSIs would be physically affected by the second runway and they are visually screened from the airport by intervening vegetation, roads and other structures. They may experience a slight increase in air noise (of up to 3dB) but are already exposed to such noise. Furthermore, these sites are not designated for supporting birds or other species which would be particularly susceptible to noise disturbance. 3.6 A list of nature conservation designations within 15km of the Gatwick Airport including Sites of Special Scientific Interest (SSSIs), Special Areas of Conservation (SAC) and Special Protection Areas (SPAs) is provided as Appendix 3. 6 Page 287 rpsgroup.com

Landscape Designations 3.7 No internationally or nationally designated landscapes would be directly impacted by any runway options in the safeguarded area. 3.8 There are two Areas of Outstanding Natural Beauty (AONB) in the vicinity of the airport. The northern boundary of the High Weald AONB is about 3km to the south east, beyond the town of Crawley, and the closest part of the Surrey Hills AONB boundary is 8km to the north west. Further to the north east is the Kent Downs AONB which is a little over 15km from the airport. 3.9 The South Downs National Park lies beyond the High Weald AONB some 24km to the south of the airport. 3.10 The north-western fringe of the High Weald is heavily forested and this largely screens the the landscape from the effects of development in the low lying Mole Catchment in which the airport is situated. Similarly, the Surrey Hills AONB is well wooded and most views towards the airport are screened by the low ridge of hills to the north-west of Charlwood Village. 3.11 In light of the low visibility of the airport from most surrounding areas, it is considered unlikely that runway options within the safeguarded area would have an adverse impact on the wider landscape character of the AONBs or important views towards and within them. Heritage Designations 3.12 There are no Registered Parks and Gardens within the immediate vicinity of the airport, the nearest being the Grade II Reigate Priory 7.2 km to the north. 3.13 There are two scheduled ancient monuments beyond the southern boundary of the safeguarded area at Tinsley Green (an area of former medieval settlement located to the south east of the airport) and Ifield Court (a moated manor to the south-west). Neither would be directly affected by the runway options in the safeguarded area. 3.14 There are five Grade II* and thirteen Grade II listed buildings within the safeguarded area. This gives an indication of the possible loss of listed buildings but it might be possible to retain some (for example there are three listed buildings which are already incorporated within the existing airport) or to dismantle and rebuild these elsewhere. The effects on listed buildings and potential mitigation measures will be assessed during the development of the draft proposals, together with the effects on the settings of other listed buildings that are nearby. 7 Page 288 rpsgroup.com

4 OTHER LOCAL SITES AND FEATURES 4.1 The other local sites and features identified are shown on Figures 2 and 3. 4.2 GAL will update its assessments of other local environmental impacts and appropriate mitigation measures in accordance with the Commission s sift criteria and any further guidance as the draft proposals are developed. This will include any effects on local ecological sites, protected and ancient woodland, areas of archaeological importance, rivers and flood risk. Conservation Areas 4.3 There are four Conservation Areas in proximity to the airport: one immediately to the north at Massetts Road in Horley, one to the east at Burstow, one to the southwest at Ifield and the one encompassing much of the village of Charlwood to the west. None of these Conservation Areas lie within the current safeguarded area. The setting of the Charlwood Conservation Area could be altered by any further expansion of the airport to the west and suitable mitigation in the form of landscape bunds, screens, ground noise barriers and other mitigation would need to be evaluated as part of any such proposals. Archaeology 4.4 The SERAS report suggested a high potential for hitherto undetected sites spanning the prehistoric, Roman, medieval and post-medieval periods. Since that time, Crawley Borough Council has designated three Archaeologically Sensitive Areas to the south of the existing airport boundary and within the Safeguarded Area. GAL intends to commission a desk study of the archaeological potential of the land which could be disturbed by the construction of a second runway and associated infrastructure. Local Landscape/Townscape 4.5 The Landscape Character Assessment of West Sussex (West Sussex County Council) identifies the area to the north of Crawley in which the safeguarded area is located as character area LW8 Northern Vales. The key characteristics of this area are identified as follows: Flat to gently undulating narrow clay vale, with floodplain and upper tributaries of the River Mole in the north east Crossed by the upper reaches of the River Arun in the south west including one of its main tributaries, Boldings Brook Pattern of small, medium and large fields with a variable density of hedgerows Predominantly pasture farmland in the north east changing to arable farmland with smaller areas of pasture around Warnham and Faygate to the south west Scattered tree cover, isolated woodlands and copses Distinctive field trees and farm ponds 8 Page 289 rpsgroup.com

Major road and rail corridors and pylon lines Strong suburban and urban fringe influences of Crawley, Horsham and Gatwick Airport Some localities retain an enclosed rural character, for instance, west of Ifield Significant area of historic parkland of Warnham Court Large golf course near Ifield Visual intrusion in parts from retail and industrial areas, housing, and sand and gravel workings. 4.6 The flat or gently undulating topography of the airport and the safeguarded area, combined with the tree cover in the landscape to the west, limit the extent of potential visual impacts of both the existing airport and extensions for a second runway to the south. 4.7 Much of the adjoining area on the northern fringe of Crawley is commercial (at Manor Royal) rather than residential. 4.8 The flat topography of the landscape to the west of the safeguarded area gives way to rising land. Some of this land is wooded and some trees might encroach into aeronautical surfaces of a second runway. If this were the case there may be a need for a tree management programme in this area. 4.9 The potential for increased visual intrusion to local communities, particularly the village of Charlwood to the west, will be given careful consideration in the development of the draft proposals and appropriate mitigation will be developed. Nature Conservation 4.10 Within 6km of the Airport, there are eight Local Nature Reserves. Details of the location and type of reserves are given at Appendix 4. 4.11 Willoughby Fields is a Site of Nature Conservation Importance (SNCI) located on the north side of Crawley, part of which has also been recently designated as a Local Nature Reserve. It was formerly a farm and now includes the sports pitches of Crawley Rugby Club, two streams, two large unimproved meadows and extensive hedgerows. The boundary of the safeguarded area runs through the site, parts of which might therefore be affected by the second runway options. 4.12 There are two other local plan Sites of Nature Conservation Importance that encroach upon the safeguarded area and the existing airport; both are areas of woodland shown on Figure 2. Within 6km of the Airport, there are Sites of Nature Conservation Importance predominantly to the south in areas within Crawley and to the south-east close to Worth in Mid-Sussex. There is also a Site of Nature Conservation Importance to the west of Charlwood adjoining the Sussex Border Path. 4.13 The local plan in Horsham district identifies land to the west of safeguarded area as Protected Woodland. This is outside of the safeguarded area at Hyde Hill and in and around Ifield Wood. 4.14 In terms of Ancient Woodland, there are pockets of woodland located within the safeguarded area close to Rowley Farm, at Black Corner, close to the existing southern boundary of the 9 Page 290 rpsgroup.com

airport at Lowfield Heath and near Ifield Court. There is also Ancient Woodland within the existing airport boundary to the north of Tinsley Green. Public Access and Recreation 4.15 The Other Local Features that have been investigated in relation to potential impacts on public access and recreational resources include those attributes that were assessed in the SERAS appraisals. The runway options to the south of the existing airport do not affect any country parks or town and village greens. A small area of registered common land is within the south-western corner of the safeguarding area, to the west of Ifield Court, and there may be impacts on a length of the Sussex Border Path that runs along the northern edge of the existing airport, although there may be opportunities for providing improvements to this route within the safeguarding area. Contamination 4.16 A number of sites in and around the airport have been identified as having a minor or moderate potential for contamination due to former land uses. Where such sites are likely to be affected by the second runway, these will be investigated further and suitable remediation plans drawn up where necessary. Rivers and Flood Risk 4.17 Gatwick is located in the upper reaches of the River Mole catchment. A number of existing watercourses flow through the existing airport namely Gatwick Stream, Crawters Brook and Manns Brook. The River Mole currently runs through a culvert underneath the existing runway and through the safeguarded area. Manns Brook is located slightly to the west of the safeguarded area. All of the southern runway options would impact on the stretch of the River Mole to the south of the culverted section and may also affect sections of the other watercourses. Diversion of the River Mole could present opportunities to address current flood risk issues down stream of the airport in Horley and Reigate. GAL will explore options for river diversions as part of the draft proposals. 4.18 GAL would expect to be able to mitigate surface water run-off and water quality impacts using water treatment techniques such as reed beds and balancing ponds. 4.19 All of these watercourses have land adjacent to them in Flood Zones 2 and 3 that are identified on the Environment Agency Flood Map. 4.20 A number of studies of these rivers have been undertaken in recent years in connection with development proposals on the airport. A Strategic Flood Risk Assessment (SFRA) has also been undertaken for Crawley Borough Council and published in April 2007. 4.21 The catchment is largely comprised of Weald Clay which is a non-aquifer and not used for groundwater water abstraction. 4.22 The development of a second runway will require works to be undertaken to accommodate these watercourses and their flood zones together with changes to the surface water drainage regime within the airport. The works will require mitigation measures to be developed that take into account the environmental qualities of the watercourses, maintaining water and habitat quality, 10 Page 291 rpsgroup.com

the desirability of maintaining open watercourse and sustainable drainage systems. The use of water resources during the construction and operation of a two runway airport would also be considered. 4.23 In the previous studies undertaken for SERAS 2, the effects of a new runway to the south of the existing airport were appraised together with potential mitigation measures. The report found that most of the potential impacts on water resources at Gatwick were low or medium adverse as many of them could be mitigated. The effects on surface water from the diversion of the rivers was appraised as medium adverse and the effects on groundwater, flooding and water resources were considered to be low adverse. 4.24 GAL will consult the Environment Agency and continue to develop measures for surface water and flood risk alongside the draft proposals. Other Local Plan Policies 4.25 Figure 3 shows the main local plan policies that are of relevance within 6km of the airport that are not already included on Figures 1 or 2. 4.26 The Airport s Public Safety Zone (PSZ) extends to the east and west of the existing runway out to Burstow (Tandridge District) and over the M23 to the east and towards Rusper (Mole Valley and Horsham Districts). 4.27 The PSZ extends over land that has been allocated within Crawley Borough as Strategic Gap. Strategic Gap land within Crawley Borough adjoins the existing airport boundary and surrounds it to the east, south and west. To the south it serves as a buffer to separate Gatwick Airport from Crawley. To the east, it separates the airport from the M23 motorway. The Strategic Gap land to the south and east of the airport is almost entirely within the safeguarded area. The emerging local plan no longer includes land around the airport as Strategic Gap. The safeguarded land is retained. 4.28 There is a second larger parcel of Strategic Gap land within Mid-Sussex District within 6km of the airport. This land separates East Grinstead and Copthorne from the M23 and the airport beyond to the west. 4.29 To the north-east of the airport boundary and adjoining the A23 is a parcel of land within Reigate and Banstead Borough which is allocated as Gatwick Airport Open Setting. The purpose of this designation is to maintain the open setting of the airport consistent with Green Belt and Strategic Gap policies of adjacent local authorities. 4.30 There are two employment opportunity areas located just outside of the safeguarded area to the south of the airport and to the north of Manor Royal within Crawley Borough. 4.31 Within Crawley Borough, there is also land allocated for strategic development at the North East Sector for a new neighbourhood to accommodate 2,700 dwellings. This land encroaches within the safeguarded area to the west of the railway line. There are also plans for significant 2 SERAS Stage Two: Appraisal Findings Report. April 2002. 11 Page 292 rpsgroup.com

redevelopment and intensification of sites within the Manor Royal and County Oak employment opportunity areas which adjoin the safeguarded area. Additionally within 6kms of the airport, there is a second strategic development location at land to the west of Bewbush in Horsham. 12 Page 293 rpsgroup.com

FIGURES Page 294 rpsgroup.com

Bookham Commons Guildford Mole Gap to Reigate Escarpment (SAC) Sheepleas Ranmore Common Hackhurst & White Downs S u r r e y H i l l s ( A O N B ) Mole Valley Leith Hill Leith Hill Waverley Vann Lake & Ockley Woods Clock House Brickworks Smokejack Clay Pit Warnham Slinfold Stream & Quarry Horsham St Leonard's Park Ponds Coneyhurst Cutting Contains Ordnance Survey data Crown copyright and database rights 2013 Reigate Heath Glovers Wood House Copse Buchan Hill Ponds St Leonard's Forest Chipstead Downs Mole Gap to Reigate Escarpment Reigate and Banstead Crawley H i g h W e a l d ( A O N B ) Cow Wood & Harry's Wood Worth Forest Quarry Hangers Hedgecourt Wakehurst & Chiddingly Woods Turner's Hill Woldingham & Oxted Downs Godstone Ponds Tandridge Blindley Heath Stone Hill Rocks Philpots & Hook Quarries West Hoathly Freshfield Lane Mid Sussex Titsey Woods Lingfield Cernes Weir Wood Reservoir Westerham Wood K e n t D o w n s ( A O N B ) Staffhurst Wood Sevenoaks Mills Rocks Wealden Ashdown Forest (SPA, SAC) Ashdown Forest Rev: Date: Amendment: Name: Checked: Data Source: Status: FINAL RPS 2013 Willow Mere House Compass Point Business Park Stocks Bridge Way St. Ives Cambridgeshire PE27 5JL T 01480 302751 F 01480 466911 E rpscm@rpsgroup.com Client: Project: Title: Scale: Projection: Date: Airports Commission Long Term Options Internationally and Nationally Designated Sites @A3 British National Grid Datum: OSGB36 03/05/2013 Drawn: BF Checked: DC Job Ref: OXF8027A Figure No: 1 Revision: A www.rpsgroup.com NORTH DOWNS WAY 510000 520000 Auclaye 510000 520000 530000 530000 540000 540000 Legend Existing airport boundary Gatwick safeguarding area 6km site buffer 10km site buffer 15km site buffer Special Protection Area (SPA) Special Area of Conservation (SAC) Site of Special Scientific Interest (SSSI) Site of Special Scientific Interest (SSSI) of geological interest Area of Oustanding Natural Beauty (AONB) National Trail Scheduled monument Green Belt Listed Building # Grade I # Grade II* # Grade II Parks and Gardens Grade I Grade II* Grade II Gatwick Airport Limited 1:120,000 0 1 2 3 4 5 0.5 km [ 130000 140000 150000 130000 140000 150000 Project Ref: O:\OXF8027A Gatwick\GIS\OXF8027A_Strategic Plan.mxd Page 295

Mole Valley Horsham Contains Ordnance Survey data Crown copyright and database rights 2013 Leigh Edolph's Copse Charlwood Buchan (Country Park) Ifield Target Hill Park Reigate and Banstead Willoughby Fields Crawley High Street Broadfield Park Tilgate Park (Country Park) Massetts Road, Horley Grattons Park Waterlea Meadow Forestfield and Shrublands Tilgate Forest Worth Tandridge Mid Sussex Outwood Worth Way (Country Park) Turners Hill Rev: Date: Amendment: Name: Checked: Data Source: Status: FINAL RPS 2013 Willow Mere House Compass Point Business Park Stocks Bridge Way St. Ives Cambridgeshire PE27 5JL T 01480 302751 F 01480 466911 E rpscm@rpsgroup.com Client: Project: Gatwick Airport Limited Airports Commission Long Term Options Title: Scale: Projection: Date: Other Local features: Environmental @A3 British National Grid Datum: OSGB36 27/06/2013 Drawn: BF Checked: AM Job Ref: OXF8027A Figure No: 2 Revision: A www.rpsgroup.com Tandridge Border Path Sussex Border Path Newdigate Rusper Church Road, Horley Horley St Peter's, Ifield Road Sunnymead Flats Dyers Almshouses Brighton Road, Southgate Cross Oak Lane, Salfords Burstow Tandridge Border Path Sussex Border Path 520000 520000 530000 530000 Legend Exisiting airport boundary Gatwick safeguarding area 6km site buffer Local Nature Reserve (LNR) (Natural England) #* Recently designated Local Nature Reserve (LNR) Site of nature conservation importance Potential site of nature conservation importance Local Nature Reserve (Local policy plan) Protected woodland Ancient woodland Conservation Areas [_ Archaeologically sensitive areas Country parks! Long distance path 1:50,000 0 1,000 2,000 200 400 600 800 m [ 140000 140000 Project Ref: O:\OXF8027A Gatwick\GIS\OXF8027A_Local Environmental.mxd Page 296

Mole Valley Contains Ordnance Survey data Crown copyright and database rights 2013 Reigate and Banstead Tandridge Mid Sussex Rev: Date: Amendment: Name: Checked: Data Source: Status: FINAL RPS 2013 Willow Mere House Compass Point Business Park Stocks Bridge Way St. Ives Cambridgeshire PE27 5JL T 01480 302751 F 01480 466911 E rpscm@rpsgroup.com Client: Project: Title: Scale: Projection: Date: Airports Commission Long Term Options Other Local features: Land Use Planning Designations @A3 British National Grid Datum: OSGB36 27/06/2013 Drawn: BF Checked: AM Job Ref: OXF8027A Figure No: 3 Revision: A www.rpsgroup.com M23É Horsham Faygate West Bewbush Ifield Salfords Horley Gatwick Airport Manor Royal and County Oak Crawley Three Bridges Crawley North East Sector A2219Ê Ê A2220Ê A217 A2220Ê Ê A2219Ê A2004Ê A2220Ê A2011Ê Ê A23(T)Ê Ê A23 A23 A23 Ê Ê 520000 520000 A264 530000 530000 A264 Legend Exisiting airport boundary Gatwick safeguarding area 6km site buffer Strategic Gap Employment Opportunity Strategic Development Location Gatwick Airport Open Public Safety Zone Motorway A Road Railway Railway station Gatwick Airport Limited 1:50,000 0 1,000 2,000 200 400 600 800 m [ 140000 140000 Project Ref: O:\OXF8027A Gatwick\GIS\OXF8027A_Local Policy.mxd Page 297

APPENDICES Page 298 rpsgroup.com

APPENDIX 1 INTERNATIONALLY AND NATIONALLY DESIGNATED SITES Page 299 rpsgroup.com

APPENDIX1 INTERNATIONALLYANDNATIONALLYDESIGNATEDSITES Presentwithin15kmSearchArea? Comments (Alldistancesfromexistingairportboundary) Date Obtained Dataset Data Source NaturalEngland: Main Designations ThenearestSACsareAshdownForest,12.0km tothesoutheastandthemolegaptoreigate Escarpment,9.5kmtothenorth. 20/05/2013 Yes Natural England SpecialAreasofConservation (SAC) ThenearestSPAisAshdownForest,12.0kmto thesoutheast. 20/05/2013 Yes Natural England SpecialProtectionAreas (SPA) 20/05/2013 Nonewithin15km Natural England RamsarSites ThenearestSSSIstoGatwickare: GloversWood1.7kmtothewest; HouseCopse 4.3kmtothesouthwest; BuchanHillPonds 4.9kmtothesouthwest; Hedgecourt 4.9kmtotheeast. Page 300 20/05/2013 Yes Natural England SitesofSpecialScientific Interest(SSSI) 20/05/2013 Nonewithin15km Natural England NationalNatureReserves (NNR) 20/05/2013 Nonewithin15km Natural England NationalParks ThreeAONBslieatsomedistancefrom Gatwick: TheHighWealdAONBliestothesouthof Crawley,3.2kmsouth; TheSurreyHillsAONBliesmainlytothewest ofthea24andnorthofdorking,8.0kmtothe northwest; 20/05/2013 Yes Natural England AreasofOutstandingNatural Beauty(AONB) 1 rpsgroup.com

Presentwithin15kmSearchArea? Comments (Alldistancesfromexistingairportboundary) TheKentDownsAONBliesadjacenttothe M2515.6kmtothenorth. Date Obtained Dataset Data Source 20/05/2013 Nonewithin15km Natural England MarineConservationZones (MCZs)/MPAs TheNorthDownsWayNationalTrailruns throughthesurreyhillsandkentdowns AONBs,9.9kmtothenorth. 20/05/2013 Yes Natural England NationalTrails OtherDesignations IdentifiedinNPPF TheLondonMetropolitanGreenBeltinSurrey liesadjacenttotheairportboundarytothe northwest,nearcharlwood,andtotheeastof thea23atburstow. Page 301 GreenBelts Yes Nationallydesignated heritageassets(nppfpara. 132): ThenearestScheduledMonumentstothe airportare: AMedievalmoatedsiteatIfieldCourt,1.3km tothesouthwest; Medievalsettlementremains100msoutheast and150msouthwestofoldlandsfarm, TinsleyGreen,0.1kmtothesoutheast; ThunderfieldCastlemedievalmoatedsiteto thesouthofhorley,1.1kmtothenortheast. 21/05/2013 Yes English Heritage ScheduledMonuments 2 rpsgroup.com

Dataset Data Source Date Obtained English Heritage ProtectedWreckSites Presentwithin15kmSearchArea? Comments (Alldistancesfromexistingairportboundary) English Heritage Battlefields 21/05/2013 Nonewithin15km English Heritage GradeIandII*Listed Buildings 21/05/2013 Nonewithin15km 21/05/2013 Yes English Heritage GradeIandII*Registered ParksandGardens 21/05/2013 Yes Thereareanumberoflistedbuildingswithin andadjacenttotheexistingairport. ThenearestRegisteredParkandGardenisthe English Heritage UNESCOWorldHeritageSites GradeII*GravetyeManor,8.1kmtothesouth east.beyond10kmtherearegradeiparksand GardensatLeonardslee,13.5kmtothesouth andgradeii*parksandgardensatthehigh Beeches,9.1kmtothesouth English Heritage GradeIIListedBuildings 21/05/2013 Nonewithin15km 21/05/2013 Yes English Heritage GradeIIRegisteredParksand Gardens 21/05/2013 Yes Thereareanumberoflistedbuildingswithin andadjacenttotheexistingairport. ThenearestRegisteredParkandGardenisthe GradeIIReigatePriory,7.2kmtothenorth. Beyond10kmthereareGradeIIParksand GardensatWarnhamCourt,10.7kmtothe southwestandstonehurst,9.0kmtothesouth east. 3 rpsgroup.com Page 302

APPENDIX 2 - OTHER LOCAL SITES AND FEATURES Page 303 rpsgroup.com

APPENDIX 2 - OTHER LOCAL SITES AND FEATURES Dataset Data Source Date Obtained Present within 6km Search Area? Local Green Space None within 6km Heritage Coasts None within 6km Conservation Areas Local Plan Adopted Proposals map Local Nature Reserves (LNR) Natural England 20/05/2013 Archaeological Sensitive Areas Local Nature Conservation Sites Country Parks Local Plan Adopted Proposals map Local Plan Adopted Proposals map Local Plan Adopted Proposals map Gatwick Safeguarding Area Local Plan Adopted Proposals map Yes Comments Local Green Space (LGS) is a new designation identified in the Natural Environment White Paper (June 2011) and the NPPF (March 2012). LGS will be identified by Neighbourhood Plans and Local Plans but none has been designated in the study area to date. The nearest Conservation Areas are at Horley, to the north; Charlwood, to the west; Ifield, to the south west and Burstow to the east. Yes The nearest LNRs are Edolph s Copse, to the north west and Grattons Park, to the south east. Willoughby Fields, to the south west has also been recently designated as an LNR (awaiting boundary details). Local site include sites of importance for their scientific, educational and historical value as well as their visual qualities. Several different titles are used in different counties including Sites of Importance for Nature Conservation (SINCS), Sites of Nature Conservation Importance (SNCIs) and County Wildlife Sites (CWS). Sussex Biodiversity Records Centre uses the term SNCI. The safeguarding area on the adopted local plan proposals map was taken from Gatwick s 2006 Interim Masterplan. 1 rpsgroup.com Page 304

Dataset Data Source Date Obtained Present within 6km Search Area? Strategic Gap Local Plan Adopted Proposals map Gatwick Airport Runway Public Local Plan Adopted Safety Zone Proposals map Gatwick Airport Open Setting Local Plan Adopted Proposals map Comments Protected/Ancient Woodland Local Plan Adopted Proposals map Employment Opportunities Area Local Plan Adopted Proposals map 21/05/2013 None within 6km Long Distance Path OS Mapping 2 rpsgroup.com Page 305

APPENDIX 3 EUROPEAN AND NATIONAL NATURE CONSERVATION DESIGNATIONS Page 306 rpsgroup.com

Appendix 3: European and National Nature Conservation Designations within 15km radius of Gatwick Airport, including; SSSI, SAC & SPA NB: distances are taken from the centre point of Gatwick airport Information on SSSI is from Natural England Name of SAC Description Proximity to (km) and direction from Gatwick Airport Area (ha) 887.68 9.4 (N-NW) Stable xerothermophilous formations with Buxus sempervirens on rock slopes (Berberidion p.p.); Seminatural dry grasslands and scrubland facies: on calcareous substrates (Festuco-Brometalia) including important orchid sites; Taxus baccata woods of the British Isles; European dry heath; and Asperulo- Fagetum beech forests. Great Crested Newt, Bechstein's Bat Mole Gap to Reigate Escarpment Name of SPA/SAC Description Proximity to (km) and direction from Gatwick Airport Area (ha) SAC - North Atlantic wet heaths with Erica tetralix; European dry heaths. Notable species present, Great Crested Newt SPA - See SSSI for habitat types. Notable species present, Nightjar, Dartford Warbler 12.0 (SE) Ashdown Forest 2728.5 (SAC) 3207.07 (SPA) 1 rpsgroup.com Page 307

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport Glover s Wood 74.51 1.7 (NW) Broadleaved, mixed and yew woodland lowland (Favourable). Glover's Wood is a substantial area of woodland which lies on neutral to slightly acid clays across the incised valley of the Welland Gill. The site consists almost entirely of semi-natural broadleaved woodland, part of which is considered to be primary. The primary woodland areas, situated mainly on the sides of a calcareous gill, support a very rich ground flora. There are at least 4 former ponds, the central pond is located at the confluence of what may have been 4 fields. House Corpse 12.45 4.4 (SW) Broadleaved, mixed and yew woodland lowland (Favourable). A small isolated woodland, there is much to suggest it is ancient woodland with continuity of woodland cover since at least the Middle Ages. This type of woodland cover is rare, being a close association of small-leaved lime and hornbeam, previously managed as coppice, under oak standards, and is almost unknown elsewhere in Southern England. Buchan Hill Ponds 19.49 5.0 (SW) Standing open water and canals (Unfavourable recovering) These three ponds are the best example in West Sussex of Wealden hammer ponds on acid Tunbridge Wells sands. A nationally uncommon woodland type occupies the wetlands around the ponds and the site supports a rich dragonfly fauna which includes two particularly notable species. Worth Forest 43 6.1 (S) Broadleaved, mixed and yew woodland (Favourable & Unfavourable recovering). The woodland lies on Tunbridge Wells Sand and Grinstead Clay, and is situated in a ghyll formed by a stream cutting down through the soft sandstone. Whereas the lower slopes and valley bottom are poorly drained, the upper slopes are drier and retain numerous old trees which support an uncommonly rich community of lichens, mosses and liverworts. At the west end of the site there is a small area of scrub on the valley slope. Hedgecourt 31 4.9 (E) Broadleaved, mixed and yew woodland lowland, Fen, marsh and swamp lowland (Favourable), 2 rpsgroup.com Page 308

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport Standing open water and canals (Unfavourable recovering). Is the most important wetland site remaining in south-east Surrey. Situated in the upper Eden Brook Valley on alluvial soils overlying Tunbridge Wells sandstones, the site incorporates a range of habitats including woodland, grassland and fen-marginated open water. Hedgecourt lake itself is an ancient mill pond resulting from the damming of the river. These habitats support a wide variety of animal life including several locally distributed beetles (Coleoptera) and a large breeding-bird fauna. Turner s Hill 0.18 6.2 (S-SE) Earth heritage (Favourable) A disused quarry exposes the Ardingly Sandstone Member of the upper Lower Tunbridge Wells Formation (upper Hastings Beds Group), Wealden Series. 152 6.7 (S-SE) Broadleaved, mixed and yew woodland lowland (Favourable and Unfavourable recovering). Extensive exposures of sandrock, a nationally rare habitat, which are of biological and geological importance. This site has the richest sandrock community in the country, supporting a unique flora. It is the locality of an uncommon cranefly, and also has a diverse breeding community of woodland birds. Wakehurst & Chiddingly Woods 35 7.1 (SW) Earth heritage (Favourable) This brick pit shows beds in the lower part of the Weald Clay Group, stratigraphically above the strata seen at the GCR SIL at Warnham. Like Warnham, it is one of the most important exposures of Weald Clay. This is an outstanding site with great potential for palaeontological and sedimentological research. Clock House Brickworks 72 9.3 (S) Broadleaved, mixed and yew woodland (Favourable). This ancient woodland has several steep sided stream valleys (ghylls), formed by streams cutting down through Gristead clay, which contain plants with an Atlantic distribution. The woodland supports a rich community of breeding birds (47 species). Two woodland types dominate the wood: hazel-pendunculate oak and pendunculate oakhazel ash. Cow Wood & Harry's Wood 3 rpsgroup.com Page 309

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport Reigate Heath 61 8.0 (N-NW) Broadleaved, mixed and yew woodland lowland, Neutral grassland lowland (Unfavourable no change a declining) & Dwarf shrub heath lowland (Favourable). This site encompasses a range of habitats including Reigate Heath itself which consists of open heath and acidic grassland, with some areas where bracken. A small hill of the Lower Greensand series bears sandy acidic soils which support the heath and oak woodland. The remainder of the site lies over alluvium, overlain in turn by peat in the meadows. The marshy meadows support a lush sward of Yorkshire fog grass. Warnham 28.52 8.2 (SW) Earth heritage (Favourable). The Langhurst Wood brick pit exposes the lower Weald Clay Group above the Horsham Stone and is one of the most important sites in this unit. Sedimentary structures are preserved, often as siltstone lenticles and include basin-casts, concentric groove-casts around upstanding plants, various forms of ripple marks, lineated plant fragments and gutter-casts. Auclaye 0.58 8.1 (SW) Earth heritage (Unfavourable declining). This site yields well preserved bodies and wings of insects of Lower Cretaceous age. The Weald Clay here contains concentrations with remains attributable to several insect orders. The site has produced a new Gryllid (Orthoptera), important because records of crickets in the Lower Cretaceous are very few, and a new aculeate hymenopteran. It is a locality of importance in studies of Mesozoic insect faunas. St Leonard's Forest 84 9.4 (S-SW) Broadleaved, mixed and yew woodland (Unfavourable recovering/no change & Favourable) & Standing open water and canals (Favourable). Remnants of a formerly more extensive deciduous forest on the Tunbridge Wells Sands (Hastings Beds) 3km east of Horsham. Examples of high forest remain and the ground vegetation is still varied, and the streams which cross the site retain relict flora from the Atlantic period of same 5000 years ago. The woodland bird population is varied, and includes some of the more local species of old woodlands. The woodlands also support a population of the purple emperor Apatura iris, a butterfly with a restricted British distribution. Much of the deciduous 4 rpsgroup.com Page 310

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport woodland is dominated by pedunculate oak Blindley Heath 26.34 7.8 (NE) Neutral grassland lowland (Unfavourable recovering). This site is the best known example of relict damp grassland on Weald Clay in Surrey. The grassland supports a rich flora of typical Wealden plants, some of which now have a restricted distribution in Surrey. Several ponds and a stretch of the Ray Brook contribute further to the site s interest. 56 9.2 (E) Broadleaved, mixed and yew woodland lowland (Favourable and Unfavourable recovering) & Standing open water and canals (Favourable). Part of the site is a nature reserve managed by the Surrey Trust for Nature Conservation. This site was formerly known as Vann Lake, and the site boundary has been modified by extensions and deletions. This site contains a wooded gill which has been dammed to form a hammer pond. The underlying geology is mainly of Weald Clay, although contrasting outcrops of Paludina Limestone increase habitat diversity. The woodlands include blocks of ancient woodland, and are botanically rich. The site also supports a number of uncommon insects, an important community of breeding birds, and a population of dormice Muscardinus avellanarius. Vann Lake & Ockley Woods 1015.76 9.4 (N-NW) Broadleaved, mixed and yew woodland lowland & Calcareous grassland lowland. This site contains the largest part of the North Downs in Surrey which has remained relatively undisturbed by the pressures of modern farming and building. It stretches for 8 miles (12 km) between Leatherhead and Reigate, and includes a range of outstanding wildlife habitats representative of the best of those found on the North Downs. Woodland, chalk grassland, chalk scrub and heathland form an interrelated mosaic which supports a wide diversity of characteristic plants and animals, of which many are local or rare. The site includes the Mole Gap, Box Hill and Headley Heath areas which have been studied for many years and are used for teaching school-children and students at all levels. Mole Gap to Reigate Escarpment St Leonard's Park 3 10.2 (S-SW) Standing open water and canals (Unfavourable no change). These species-rich ponds lie along a 5 rpsgroup.com Page 311

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport Ponds wooded stream, located 1km east of Horsham on the Hastings Beds (Upper Grinstead Clay and Upper Tunbridge Wells Sand). The broad fringe of fen and marginal vegetation surrounding the ponds support diverse botanical communities and a number of uncommon species occur at Dry Pond. The ponds and adjacent woodland provide habitat for a diverse range of Odonata (dragonflies and damselflies), including several rare species. The woodlands are dominated by downy birch 2 9.7 (SE) Earth heritage (Favourable). This quarry exposes the upper parts (4m) of the Ardingly Sandstone Member of the upper Lower Tunbridge Wells Sand Formation and the lower member of the Grinstead Clay Formation (8.2m) capped by the base of the Cuckfield Stone Member (upper Hastings Beds Group). Philpots & Hook Quarries Leith Hill 323 10.5 (NW) Broadleaved, mixed and yew woodland lowland (Favourable & Unfavourable recovering) & Dwarf shrub heath lowland (Unfavourable recovering). This site consists of a wide variety of woodland habitats, some of restricted distribution, which have developed under the influence of underlying geology and past management. It supports a diverse community of breeding birds and numerous invertebrates of national and county significance have been recorded. Much of the site is underlain by the Hythe Beds of the Lower Greensand ridge with exposures of Atherfield Clay present in the dip-slope stream valleys. Consequently, the soils are characteristically acidic. However, south of a major land slip scar is the gentle southerly slope of the Weald Clay, giving rise to more neutral soils. 153 9.6 (SE) Standing open water and canals (Unfavourable no change). The site lies within the High Weald Area of Outstanding Natural Beauty (AONB). Weir Wood Reservoir is one of the largest areas of open water in Sussex and supports a rich community of breeding birds. The diversity and numbers of wintering and passage birds are also of note. Weir Wood Reservoir Stone Hill Rocks 0.63 9.7 (SE) Earth heritage (Favourable). This site shows a typical example of the many natural sandstone crags 6 rpsgroup.com Page 312

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport in mid-sussex (from Handcross to east of Tunbridge Wells) exposing the upper Lower Tunbridge Wells Sand Formation (Ardingly Sandstone Member) in the upper Hastings Beds Group. West Hoathly 0.64 10.7(SE) Earth heritage (Favourable). West Hoathly is a working brickclay pit. Sections in this pit exposes up to 9 m of clays at the base of the Wealden Wadhurst Clay Formation (lower Hastings Beds Group) and occasionally the underlying Top Ashdown Pebble Bed. Godstone Ponds 9 11.0 (SW) Broadleaved, mixed and yew woodland lowland (Favourable & Unfavourable no change & recovering) & Standing open water and canals (Unfavourable declining). These two small areas embrace a range of wetland habitats including good examples of a nationally uncommon woodland type (base-rich springline alder wood) and three ponds. There is a great deal of local variation in geology and hydrology within the site; consequently several plants which are uncommon in Surrey occur. The site supports a rich community of breeding birds and has a rich invertebrate fauna. Quarry Hangers 25 12.0 (NE) Calcareous grassland lowland (Favourable & Unfavourable recovering) & Broadleaved, mixed and yew woodland lowland (Favourable). Quarry Hangers SSSI is within the Surrey Hills Area of Outstanding Natural Beauty and the boundary of the site has been modified at renotification by extensions and deletions. This site encompasses an area of chalk downland on the scarp slope of the North Downs near Caterham. It includes a mixture of species-rich chalk grassland, scrub and woodland, and supports a number of plants which are rare or local in Surrey, as well as local invertebrates. Ashdown Forest 70.98 12.0 (SE) Broadleaved, mixed and yew woodland lowland (Favourable) & Dwarf shrub heath lowland (Unfavourable). Ashdown Forest is an extensive area of common land lying between East Grinstead and Crowborough. The soils are derived from the predominantly sandy Hastings Beds. It is one of the largest single continuous blocks of heath, semi-natural woodland and valley bog in south-east 7 rpsgroup.com Page 313

Name of SSSI Description Area (ha) Proximity to (km) and direction from Gatwick Airport England, and it supports several uncommon plants, a rich invertebrate fauna, and important populations of heath and woodland birds. Mills Rocks 1.91 11.8 (SE) Inland rock (Unfavourable recovering). This site contains one of the few outcrops of Tunbridge Wells Sandstone in the county with a community of 'Atlantic' plants. This community is unusual and contains several plants with a restricted distribution. 8 rpsgroup.com Page 314

APPENDIX 4 LOCAL NATURE RESERVES Page 315 rpsgroup.com

Appendix 4: Local Nature Reserves within 6km radius of Gatwick Airport NB: distances are taken from the centre point of Gatwick airport Name of Local Nature Reserve Area (ha) Proximity to (km) and direction from Gatwick Airport Description Willoughby Fields 20 1.5 (SW) Formerly a farm it includes the sports pitches of Crawley Rugby Club, two streams, two large unimproved meadows and extensive hedgerows. The meadows and hedgerows are particularly important habitats being uncommon within Crawley Borough. The site provides an accessible natural green space for Crawley residents and is part of an important natural buffer zone between Gatwick Airport and the residential areas of Crawley. Grattons Park 1.72 1.2 (SE) Broadleaved woodland, a stream and meadows managed by Gatwick Greenspace Partnership Edolph's Copse 27.64 1.9 W) Ancient semi- natural broad- leaved woodland with Wild Service and Small- leaved Lime and a small unimproved meadow, managed by the Woodland Trust. Broadfield Park Newly designated 10 4 (SW) Comprising the grounds of a former country house containing lakes and ponds, wet woodland, mixed woodland, meadow and parkland. Waterlea Meadow Newly designated Tbc 5 (S) Contains important flood meadow, wetland, hedgerow and woodland habitats and associated wildlife. It supports good populations of reptiles and amphibians, a variety of wetland plants and many species of birds. 1 rpsgroup.com Page 316

Name of Local Nature Reserve Area (ha) Proximity to (km) and direction from Gatwick Airport Description Tilgate Forest 6.9 4.2 (S) Broadleaved woodland, coniferous woodland, lowland heathland and tall herb and fern forming the northern tip of Tilgate Park (Country Park). Owned and managed by Crawley Borough Council. Target Hill Park 9.0 4.9 (S- SW) Broadleaved woodland, coniferous woodland, lowland heathland, and tall herb and fern. Owned and managed by Crawley Borough Council. Earlswood Common 89.09 5.8 (N) Two large lakes, a number of smaller ponds, wetland corridors, scattered trees and woodland and semi- improved grassland. Owned and managed by Reigate & Banstead Borough Council. 2 rpsgroup.com Page 317

APPENDIX 5 LISTED BUILDINGS WITHIN THE SAFEGUARDED AREA AND EXISTING AIRPORT Page 318 rpsgroup.com

Appendix5:ListedBuildingswithinthesafeguardingareaandexistingairportandexistingairport Grade Description Name Thecoreofthislargebuilding,nowa nurseryschool,isanearly17thcenturytimber framedhouse.anextensionwasbuiltinthesamestyleinthe20thcentury. WilliamBurges builtthisyellow sandstone FrenchGothicstylechurchin1867asthe Anglicanparishchurchofthe(nowdepopulated)villageofLowfieldHeath.Since1974,it hasbeenintheboroughofcrawleywithinthelangleygreenneighbourhood,andis nowusedbyaseventhdayadventistchurchcongregation. FrankHoar designedthisrevolutionarycircularbuilding thefirstfullyintegrated airport terminalintheworld in1934.itwascompletedby1936,andisnowusedasoffices. Basedonasmalldepositofgravel,offeringgooddrainageinanareaofheavyclay,this farmhousedatesfromthe15thor16thcenturyandwasbuiltasafivebaytimber framedsmokebayhouse.achimneywasaddedinthe18thcentury.afatalaeroplane crashoccurredherein1936. Originallybuiltinthe15thcenturyasanopenhallhouse,itexperiencedseveral alterationsinlatercenturies.thebuildingnowhousesarestaurant,barandconference facilities. Untilabout2006,thismid16thcenturystructurefunctionedastherestaurantandbar ofanairportstaffsocialclub,butitisnowdisused. Few thatchedroofshavesurvivedinthecrawleyarea,butthistwostoreycottagehas one.itis16thcentury,possiblyfromthe1550s.situatednexttobrooksideintheold hamletoftinsleygreen. CHARLWOODHOUSE II* CHURCHOFSTMICHAELANDALLANGELS II* THEBEEHIVE(FORMERCOMBINEDTERMINALANDCONTROLTOWER) II* ROWLEYFARMHOUSE II* GATWICKMANORINN HYDERSHALL II* WINGHOUSE II RADFORDFARMHOUSE II Thisisamid17thcenturytimberframedhouseintheoldhamletof TinsleyGreen,now partofthepoundhillneighbourhood. BROOKSIDE II Althoughthisfourbaytimberframed hallhouse lieswithingatwickairport'sboundary, surroundedbyofficesandanewhotel,itsinterioriswellpreserved:datesfromeither EDGEWORTHHOUSE II the15thcenturyorc.1520. LOWFIELDHEATHWINDMILL Itsoriginsareuncertain;arumourthatitwasmovedfrom Hookwood inthe1760sthere isnorecordofawindmilltherebefore1820.anotherrumouristhatitwasmoved II fromhorsham,sussexin1738,butagainproofislacking. SPIKEMEADFARMHOUSE OnPolesLaneclosetoLowfieldHeath,this openhallhouse of1604retainsitsoriginal II smokebay CHARLWOODPARK II EarlyC19house.Twostoreys. 1 rpsgroup.com Page 319

Grade Description Name OLDBONNETTSCOTTAGE II C17orearlier,twostoreys OLDCOTTAGE This17th orearly18thcenturycottageisinanisolatedareaknownasfernhill,atthe II northeastcorneroftheborough Exteriorpaintworkhidesabrickbuiltgroundfloorandatiledupperstoreyofthislate 18thcenturyhouse. Barn.Latemediaeval.Timberframedwithweatherboardedcladdingandplaintileroof, withhiptowest. House.C17extendedtowestinC18,andtorearrightinC19,restoredinC20.Timber framedonrenderedplinth,redandbrownbrickinfillbelowtocentreandright,brick claddingbelowleft ThisbarninthegroundsofPolesAcreFarmontheedgeof LowfieldHeath wasbuiltin the17thcentury. Thisweatherboardedtimberbarn,historicallyknownasHyder'sBarn,isadjacenttothe formerhallbutwasbuiltlater.thebarnnowformspartofthegatwickmanorinn restaurantcomplex. Newname:KnightsAcre Anextensionwasbuiltusingmatchingmaterialsinthemid 19thcentury. Thiswasbuiltasatimberframedcottageattheedgeof LowfieldHeath in1705,possibly asaconversionofanolderbarn. LILACCOTTAGE II CROWNPOSTBARNTOEASTOFROWLEYFARMHOUSE II TEIZERSFARMHOUSE II POLESACREBARN II BARNATGATWICKMANOR II STBARBECOTTAGE II COUNTYOAKCOTTAGE II 2 rpsgroup.com Page 320

bettersolution.gatwickairport.com www.gatwickairport.com/newrunway