UK Economy – does it really need another Heathrow runway?

When all the other arguments for a third runway at Heathrow fall apart, those in favour of more tarmac and concrete will always claim the UK economy needs more flights to “emerging markets” or our businessmen will be stumped as to how to sell their products and services.

Despite being unable to fill all the flights that currently go from Heathrow to South America and Asia, the airport would have us believe that what we need is more aircraft flying over London.

The Airports Commission estimates that Heathrow expansion would result in no material overall increase in the number of UK passengers, business passengers, flights, or connectivity. The number of total UK passengers is forecast to rise to 402 million in 2050 without Heathrow or Gatwick expansion. With Heathrow expansion, the forecast rise is to 407 million – a difference of only 1%.

The number of destinations served by the UK is forecast to increase from 361 in 2011 to 402 without Heathrow expansion and to 401 with Heathrow expansion – making no significant difference at all.

If Heathrow is to grow it will almost certainly be at the expense of other UK airports. The foreign owners of Heathrow will be rubbing their hands with glee. They have decided to concentrate on one airport and put all its lobbying power into pushing for profits there.

When Heathrow Holdings Limited was known as BAA plc it also owned Gatwick, Stansted, Glasgow International, Edinburgh, Southampton and Aberdeen. But in 2009 concerns about a lack of competition led to the company being required to sell three of its seven UK airports (Gatwick, Stansted and Glasgow or Edinburgh) within two years.

It sold Gatwick in December 2009 to Global Infrastructure Partners, who also operate London City Airport. Edinburgh went to the same company in 2012. Heathrow clung onto Stansted until 2013 when it was bought by the Manchester Airports Group. Finally, in October 2014, It chose to sell Glasgow, Southampton and Aberdeen airports to AGS Airports Ltd, a consortium of Ferrovial (Spanish part owners of Heathrow) and Macquarie Group (based in Australia), so that it could concentrate on it’s most profitable airport, Heathrow.

You have to remember that Heathrow’s foreign investors are only interested in making money for themselves. They are not a charity and do not particularly care about the British people or the UK economy – except in relation to their capacity to be exploited for profit.

The Richmond Heathrow Campaign points out that the Airports Commission’s model considers only benefits and omits costs. Even then it estimates just 0.3% to 1.2% increase in GDP over 60 years from the expansion of Heathrow – either within a margin of error or negligible.

RHC has also flagged up the Airports Commission estimate that, with an additional runway, Heathrow is estimated to require £28 billion in debt and £6 billion in equity financing through to 2050. Up to £20 billion (Transport for London estimate) will be needed for improved surface access. This is £15bn more than Heathrow’s estimate.

So the project may require up to £54 billion in total. RHC thinks this could be difficult to obtain through the markets. For comparison, the total of all investment grade bonds issued by UK corporates in 2013 was around £46 billion.

State aid to fund this may require further government cuts elsewhere in the economy.

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Footnote: On 25th June 2015 the government announced that its £38.5bn modernisation of the railways will have to be re-examined. It looks like, the government will expect other parts of the country, such as Leeds, to sacrifice improvements in their area so that the south of the country can be given priority.

Cyclists in the London area might also ask why urgent road safety measures to improve junctions where cyclists have been killed are not likely to take place until 2020. If there are billions available to boost the profits of a foreign-owned airport and enable wealthy people to fly, why is there no money to create a safer London for cyclists and pedestrians who need to get to work?