U.K. Must Back One Airport Hub to Gain Trade Links, CBI Says

Sep 01, 2014 3:15 am ET

(Updates with Heathrow response in 9th paragraph, CBI interview comment in 11th, Gatwick response in 13th.)

Sept. 1 (Bloomberg) -- Britain should back the development of a single hub airport to lock in essential trading links to emerging markets and ensure long-term economic growth, the Confederation of British Industry said today.

Hubs like London Heathrow, Europe’s busiest, “act as a catalyst for new routes,” serving almost three times as many destinations as point-to-point rivals, according to a CBI report based on research by Steer Davies & Gleave. Each service to a high-growth market can boost trade by as much as 128 million pounds ($212 million) a year, the CBI said.

The industry group’s comments appear to favor expansion of Heathrow over the development of London Gatwick, Europe’s top single-runway airport, after the pair were identified as the best options for a new landing strip serving southeast England. A state-appointed Airports Commission is poised to decide if London Mayor Boris Johnson’s plan for a new hub in the Thames Estuary should also be considered, though a recommendation on the best option isn’t due until after the 2015 general election.

“Connectivity is the lifeblood of trade,” CBI Deputy Director-General Katja Hall said. “We need to see the Airports Commission deliver a strong case for new capacity and a clear schedule for delivery, and politicians to commit to spades-in- the-ground by the end of the next Parliament.”

Frankfurt, Paris

A second landing strip at Gatwick could cost as little as 5 billion pounds, versus 14 billion pounds for the expansion of Heathrow, which is more constrained by urban development. The estuary option is the most expensive at 65 billion pounds.

Less constrained hubs like Frankfurt serve 45 destinations in a sample of 15 emerging markets, while the limited capacity of Heathrow means it only delivers 22 connections, according to the CBI report. Non-hub terminals such as Gatwick and Barcelona offer eight routes to high-growth nations, on average.

“Point-to-point airports tend to serve specific emerging markets rather than a wide range, with often more extensive connections to those emerging markets that are nearby,” the report said. Even when taking account of the fact that hubs tend to be bigger than point-to-point terminals, emerging markets still represent a higher percentage of their routes, it said.

U.K. Competition

Heathrow, home to British Airways, has said it could add as many as 40 new destinations with a third runway and serve the whole U.K. thanks to its location and rail links. The additional capacity would boost long-haul connections almost 50 percent to 122 routes and keep the hub ahead of European rivals, allowing 740,000 flights annually, 40,000 more than Paris Charles de Gaulle and Frankfurt airports, Heathrow said in May.

“This recommendation by the CBI essentially shows that British business is backing Heathrow, as the U.K,’s only hub airport, to connect the country to global growth,” John Holland-Kaye, the airport’s CEO, said in a statement today, after last week appealing to Johnson to back its expansion plans should his favored Thames Estuary proposal be rejected.

In addition to offering flights to a higher number of emerging destinations, hub airports also drive a higher frequency of flights to new markets and bolster direct connections, according to the report. Hubs draw transfer traffic from the catchment areas of other airports, ensuring that new routes become viable sooner, CBI Head of Infrastructure Mark Dittmer-Odell said in an interview.

Catalytic Effect

“Transfer passengers are the ones that produce the catalytic effect that can be game changing for a country’s international connectivity,” Dittmer-Odell said. “It’s a clever tool that we can use in order to access emerging markets at the earliest possible opportunity and ultimately getting into those markets early gives you first mover advantage.”

Where a hub is constrained, airlines tend to focus on strengthening routes to markets that are already popular, rather than developing new routes, Hall said. That’s why Britain has done well in developing routes to India, supported by a U.K. population of 1.45 million people with family links to the subcontinent, whereas it ranks only fourth or fifth in Europe in capturing connections to China, Brazil and Russia over the past 20 years, she added.

The Commission’s recommendations should offer a clear schedule that ensures “spades in the ground by 2020,” she said. Gatwick said in a statement that its expansion is not incompatible with the CBI’s findings, and that selecting it for a new runway would “liberate capacity for more hub traffic at Heathrow and provide ‘U.K. Plc’ with two world class airports.”