What’s the future for British airports? Earlier this month, The Spectator hosted a lunchtime discussion sponsored by Gatwick Airport with MPs and policymakers who had come to test its thesis: that expanding London’s second airport is the most sensible way forward, as it would boost competition while causing a fraction of the noise pollution.

The debate was chaired by Andrew Neil. Also present were Fraser Nelson, editor of The Spectator, political editor James Forsyth, client services director Melissa McAdden, Kwasi Kwarteng MP and the Institute of Directors’ Simon Walker.

Andrew Neil opened the discussion by asking Stewart Wingate if he expected the Davies report was moving in the direction of a third runway at Heathrow.

Stewart Wingate (SW): Essentially what has happened over the last year is that we started off with 4 or 5 likely runners and riders, including Gatwick, Heathrow, Stansted and the estuary option. But as we approach Christmas time, our view is that the tighter the shortlist the better, and we think it should be down to Gatwick and Heathrow. Then, you can reduce the number of people who have a certainty that their airport will succeed in their proposals.

The risk is that we get to the end of this year with Gatwick, Heathrow, Stansted and the estuary option – essentially the entire south east – all under consideration. And that is less than helpful, because we at Gatwick are serious about actually building this runway. So the sooner they narrow down the contenders, and the sooner they can analyse the different options, the better.

Andrew Neil (AFN): Boris people privately say that they know the game [ie, Boris Island] is up. SW: Well we think the game is up for them, too. They talk quite openly when asked. We don’t want to waste too much time looking at the estuarial options as it is just undeliverable for so many reasons: cost, lack of surface, access, environmental issues, air space clashes. Not to mention that Heathrow would also have to be closed as a consequence, which is certainly not something we’re proposing if the additional runway goes into Gatwick.

Stansted, perhaps in the future, will have a part to play as part of a constellation of 3 airports, each with two runways, spreading the economic benefits and the environmental costs – and minimising them to boot. But considering the fact that Stansted is less than half-full, and is dominated by low-cost carriers, it just isn’t the right time. But in the future it could have a big role to play.

AFN: But there is a lot of capacity at Stansted that is unused?

SW: The capacity there is about 40 million, and the current volume is around 17 million – and the airport operator is already discounting to fill that volume. So looking at the different established airports, how I would describe it is that Stansted is an airport that serves low cost airlines, predominantly Ryanair.

AFN: To B-division cities. Or secondary airports; cities that are not capitals.

SW: Yes. If you then look across to Heathrow – our main competitor – it is mainly dominated by legacy carriers. There is no charter traffic, and very little low-cost traffic. Perhaps half a million, of the 70 million passengers using Heathrow, fly on low cost airlines. The others are all the flag carriers. The unique feature that Gatwick have to offer is that because we have been walking a tightrope trying to get efficient airfield operation, and efficient facilities, we can offer very competitive airport charges.

So as a consequence of that, and the strength of our market, we can offer choice. We have the legacy carriers: BA, Virgin, Emirates, Turkish Airlines, Vietnam Airlines. We fly to over 40 different long haul destinations. But we are also the biggest charter airport in the country. And of course we also cover the low-cost sector, which is where the growth has been in the last 15 years. Low-cost airlines have liberated the European market and have enabled us to travel across Europe on fantastic fares. So the unique thing about Gatwick is that it openly supports all of those different sectors, which brings me to look to the future, and the demand that we need to service. In the period between 2025 and 2045 there is only sufficient passenger demand for one more runway.

Fraser Nelson (FN): Just one more runway in the whole of the M25 area?

SW: In the whole of London and the south east. Both we and Heathrow agree that there is only demand for one runway. So there is a choice to be made.

Kwasi Kwarteng (KK): Of course they are going to say that – their position is very clearly that they are going to argue for one runway. They would be mad to say otherwise.

FN: Surely it wouldn’t be the end of the world if you both had a new runway?

SW: Well it would, but we’ll come on to that. When you look at the forecast, there is only sufficient demand for one runway. So the choice is are you going to invest in Heathrow or are you going to invest in Gatwick? If you invest in Gatwick we can invest at a level where we can continue to support all of the different models. But if you invest in Heathrow you are investing in an infrastructure that has already priced out low cost carriers. You’re investing £18 billion in an airport that already has one of the most expensive airport charges in the world. You are going to more than double the charges to passengers, so you will land yourself with twice the airport charges of anywhere else in the world.

FN: Who is going to be investing that £18bn?

SW: Part of that is going to be invested by Heathrow, but they are also asking for a £6bn taxpayer subsidy. But if you invest in £18bn, our calculations show that the charges will double. And you’ll end up with an airport that is twice the cost of any airport in the world.

KK: I was on the [Commons] transport committee for three years and we did looked at this. Michael O’Leary spoke more sense than most. His view was very much that we should have a runway at each of the airports: Stansted, Gatwick and Heathrow. It’s very expensive but through that massive extension of capacity, we will be able to create a competitive environment in which all the airports can complete, and then in quite a short space of time you would be able to establish a hub. So from my pointof view, I think that is the best solution. Of course it is very expensive.

SW: Massively expensive

KK: But you are playing the game that there can be only one?

SW: One at a time.

KK: You said until 2045, there’s only capacity for one. So that means that in the next 30 years there can be only one. It is in both your and Heathrow’s interests to say that, as you are both competing for that prize. But I actually think that a more market-friendly solution would be the one that O’Leary suggested.

SW: That is the more market friendly solution, but the problem that I see with it is that the growth is fuelled by the low cost airlines, and the low ticket prices that we’ve all come to like. So in the scenario that you build one at Heathrow but you also build the one at Gatwick – I don’t think anyone apart from Michael would advocate for another at Stansted – the charges at Heathrow will escalate. They are already one of the most expensive two or three airports in the world. They are already locked in to the legacy model, because no low cost airline can survive at Heathrow. But unfortunately because the demand would now be split between the two airports, our charges at Gatwick would rise as well, quite unnecessarily.

AFN: So if you dramatically increase the supply of something by an enormous amount, the price rises. How does that work?

SW: Because these are regulated businesses.

AFN: Ah, now that is a different matter. You didn’t say that. You said that by doing this the prices would rise when you increase the supply. Normally when you increase the supply of something, the price falls.

SW: These are regulated businesses. And if you invest on this sort of scale, and you’re getting investors involved. Which is why our belief is that you just won’t get two separate groups of investors investing at the same point in time, because the demand just isn’t there.

KK: But the investors get to choose, don’t they?

SW: Yes, but in the event that investors get to choose, the policy of the land needs to decide what the outcome is. If you go down the route of investing at Gatwick, the investors will need in the order of about £5bn.

 

KK: Are you including the surface access improvements?

SW: Those are already happening, as well as rail links.

AFN: Who pays for that?

SW: Our investors

AFN: Are you saying there is no cost to the public purse?

SW: Well, there will be planned improvements to Network Rail and the Highways Agencies, but those are already planned. But what we’d do is contribute a good proportion of the £5billion that is required. But primarily the 5 billion would be used to upgrade the airport facilities. What that will result in are charges significantly lower than Heathrow’s today. It’ll enable the legacy carriers to fulfil their demand. It’ll enable the charter carriers to fulfil their demand, and importantly it will enable the low cost carriers to participate and actually serve the large market to the European countries. So that is one scenario, which results in lower airport charges and therefore lower passenger charges, because we fulfil all of the different models. The alternative is to invest £18bn at Heathrow. We estimate that their charges will double from £20 today, which locks out the low cost carriers and the charter carriers.

KK: If your proposition is so much more compelling than Heathrow’s then why wouldn’t you allow the market to decide which is best? Why not give Gatwick and Heathrow permission, and then it’d be up to you guys to raise the private finance? If your proposition is so much more economically compelling, why wouldn’t you go head-to-head with them on that basis?

SW: Because this is a policy decision, about the future we require. If we do that, what you’ll end up with is a situation where the bigger of the two airports will simply flex its muscles and try to get permission.

James Forsyth (JF): You mentioned the policy of the land, and there is obviously a policy dimension to this, on a national level. If, in the old days trade followed the flag, trade now seems to follow the flight path. And it seems to me that as a global trade nation we are missing out on a massive opportunity. Personally, I favour more than one runway because I want a hub airport that can fly to all of these emerging markets around the world so that we can get the trade. The Spanish are now clearing up in emerging markets. When they started clearing up in South America we could say that was because of linguistic and cultural links. But now they are doing better than us in China which is surely because they have a big airport in Madrid and have got more flights to these provincial centres in China. The Chinese don’t want you to fly to Beijing or Shanghai and then move around internally. They want you to go directly.

SW: You do have to include Hong Kong when you’re looking at the broader China. We have more flights to Hong Kong than anyone else does. If you look at the volumes of people who fly to Harbin, how many people do you think fly there on a daily basis? And how many people fly to Guangzhou?

KK: But Guangzhou is the manufacturing hub of the world. There are 30 million people who live around there, and you cannot fly directly from Britain to Guangzhou province.

AFN: Simon, what’s the Institute of Directors’ position on this?

Simon Walker (SWA): Well we don’t particularly care where the hub is as long as it is accessible. You can make a perfectly good case for Gatwick. I suppose maybe at Heathrow it’s more deliverable, and who would know better from a local political point of view than Kwasi? But I’ve heard this debate a number of times, and what I don’t buy is that we don’t need a hub. If London is big enough because of its population to sustain all of the routes that we want, then why do we do so badly in direct connectivity to regional Chinese cities, and emerging destinations? I don’t mind if you don’t make a case for a hub at Gatwick, but I don’t really buy that we’re better off without one.

Stewart Wingate (SW): We always start with where the demand is and what demand needs to be served. One of the routes that is often talked about is Wuhan, the big steel city of China, and the fact that we haven’t got any connections to there from London. Yet Paris has connections directly. Those routes just got cancelled.

AFN: But you will find that routes get cancelled all the time. You are depending on a ‘predict and provide model’. You seem to put an unverifiable faith in demand predictions. My experience as an economist is that demand predictions are always wrong. And they are no foundation to base a business on. And also ­– Dubai is a classic example – I have found that if you provide the supply the demand will come. So much so that they have now opened up a second airport with a capacity of about twice that of Heathrow. Interestingly that is focusing on low-cost carriers from Eastern Europe – the first flight out of there was to Bulgaria.

SW: One of the interesting things is about the Middle East, is what Emirates have done which is base their airline entirely on long haul aircraft. They have no short haul aircraft at all. But they use the low-cost airline Fly Dubai. So you buy your ticket, and interline from the equivalent of Gatwick, and then onto the Emirates flight. What we’re saying is that Sir Howard should look at the demand, and highlight the scenarios thereafter. Developments can then be accelerated if demand comes faster than expected, and can be pushed back if things aren’t as rosy as expected. But in terms of models that lie ahead from a long-haul perspective, we see it as: you could fly direct with the new technologies that are coming in, with the DreamLiners. You could have one of the smaller alliances move from Heathrow to Gatwick; that would create room for One World to prosper at Heathrow. Or players such as Norwegian could themselves create their own networks that feed onto long haul systems, and then the likes of Easy Jet could also start connecting themselves in a similar way to FlyDubai and Emirates.

KK: You have thoroughly convinced me that this is a potential solution. My issue is that it is a sort of 65 % solution – so we’re nearly there. And it’s certainly better than doing nothing. But what I wanted to ask you about was the political process. Because I’ve got a sense of where this is going, in terms of who you’ve seen and who you’re convincing. So what are your thoughts on that? I mean clearly it’s going to be a two horse race between Heathrow and yourselves. So I just wanted to hear what you thought about the political process – and also the timeframe? Because after 2015, then the incoming government will have to decide on it.

SW: Well our view is, the sooner we get to the short shortlist – and frankly the favoured candidate – the better. Heathrow seem to be quiet on this, during the course of this debate. But let’s get the debate done.

Melissa McAdden: What about improving transport links between Gatwick and Heathrow, so that wherever the extra capacity goes, people can travel between the two…

AFN: There was a ‘Heathwick’ planned wasn’t there

FN: But where would Heathwick go? You still have to destroy several parts of suburbia, wouldn’t you?

KK: One plan I saw was that there were going to put it on stilts!

SW: I think getting that shortlist short, and sorted, is going to be very important, particularly for political parties, as manifestos will be being written next year. For us, to try to keep the temperature at a level where we can get something delivered, our view is to at the earliest opportunity debate and give a decision. In terms of time scale, we are 5 years faster than Heathrow

KK: Do you know what, they say exactly the same thing!

SW: Ours costs £5 billion. Heathrow costs 18 billion, and generally time is a factor when you’re investing that kind of money. Gatwick is all private money, while some of Heathrow’s is tax payers’ money. We are owned by GIP and ADIA, the Abu Dhabi sovereign wealth fund. We’ve got 3 pension funds. Stansted is owned by Manchester Airport and an Australian fund.

KK: And what is the timeframe for this? So if the Davies comes out in Sept 2015 – and all that the interim report does is rule out Boris or not rule out Boris…

SW: I think you’re right.

KK: What happens then? Let’s say he goes for Gatwick, well then what?

SW: Well what would be expected is that the government of the day would then have to consider his recommendation, and decide if they are going to endorse it or not. So if it does, that could take a year, or more likely 2 years, to happen. Then we start with the planning application. We have prepared an application before for a second runway, and it cost £200 million and took 3-4 years for the application alone. Of that £200 million about half of that is buying up properties, and the other half is environmental assessments, which Heathrow are downplaying at the moment. That gets you to about 2020, and you then have to get through the planning process. So the absolute earliest is 2025. And why is it 5 years longer at Heathrow? Heathrow plans contain stuff like tunnelling over the M25, which is just extraordinary, and building over reservoirs, whereas ours is relatively straightforward.

AFN: When buying the land why don’t they take the French attitude of shoving money in people’s pockets! It would be easier, cheaper and quicker?

FN: So am I right to think that if both Heathrow and Gatwick were given permission and the market had to then decide who would go ahead – would you be content with that outcome?

SW: That outcome essentially just means that Heathrow goes first

FN: Why? Because realistically you could do it. The investors just have to work out which one should win.

SW: What would happen is that we would sit on our hands, and wait then for Heathrow to apply and fail at the planning permission, and then we’d go ahead and invest. We have the broad church of air travel. We serve all of the airline models, and are very finely balanced. If you were to split the demand then we would violate that aspect of our business. If Heathrow won, they would fail. They would fail on politics, fail on planning. If Heathrow goes ahead the consequences of that are high fares and an unacceptably high environmental impact. On the other hand, if we go ahead then we would serve a mix of airlines which would result in lower and more competitive fares, and minimal environmental impact.

KK: Also, I think there’s a point that if we went ahead with that, that would help Heathrow. Because they would then be able to focus on more high-margin routes.

AFN: Speaking from a pure lobbying or public affairs perspective, your two biggest problems are arguing against the concept of a hub, because that goes against the grain. That’s a steep mountain to climb, because the Westminster consensus is that Britain must have a world-class hub. That’s one thing that’s in the brain of the political classes here. And secondly no one round here thinks that Britain’s economic future will be best served by more short haul links to Europe. The mindset here is that we need more links to emerging economies.

SW: The hub we can agree on, partly because Heathrow have just had a free run for about 10 years of walking around Whitehall and Westminster, and saying ‘hub hub hub’ to everyone. I don’t know if anyone really knows what a ‘hub’ means. But yes, we do have that mountain to climb. It’s ironic as we are the world’s best-connected city because we have combinations of airports.

KK: But the politics will drive things. If it’s politically expedient to not have a hub, then we won’t have a hub. Given where we are with the Conservative party and the Labour Party, I think that the Heathrow option is difficult for either of these two parties.

AFN: Mr Balls has become a big supporter of the 3rd runway.

KK: He always was. We forget that…

AFN: He is now talking about it because it upsets Mr Miliband!

KK: In 2005 both parties were in favour of a 3rd runway. We reached a consensus on that. Then 6 years later we were in an extraordinary position where both parties were against it. So in 6 years we’ve both gone from one side to the other. In other countries, this situation simply wouldn’t have happened, as they’d have just got on with the 3rd runway years ago. When I first came in as an MP, it was argued that HS2 would be instead of a third runway. And that was a plausible argument!

James Forsyth: Yes, because there’d be no need for domestic flights. Number 10 expects the outcome of the Davies report to be that there will be a third runway at Heathrow and a second runway at Gatwick. The Tories think that Labour will say that they won’t rule anything out of Davies. The only political block on this is the Lib Dems, as not only are they green without any countervailing pressures, but the Lib Dems’ national strength is so dire that they are turning to their regional strength. And one of their regional strengths is South West London. There’s also a problem for them, in that both Davey and Cable would be directly impacted in their seats by a third runway at Heathrow. But No.10’s view is that you need a hub.

FN: And when asked about that, they will have equated hub with business.

JF: Whenever Cameron has been on one of his visits to India and China he has been told that people can’t fly direct to where our factories are. And because people think that trade follows the flight path now. There is also a perception problem, because most people in SW1 think that Gatwick is for short haul European destinations, whereas what they want is a big, business-friendly airport that reaches out to the BRICs.

SW: Well, one of our new routes will be a direct flight to Indonesia. At the moment there is no direct flight from Europe to Jakarta. We’ve also got to consider the county councils and see where they stand. Ours welcome the fact that our investors have allowed us to go ahead and spend £1bn in the area and grown our business. They welcome that as well as the vibrant low cost European market, we’re also reaching out to both the emerging and the established economies, like our flights to Dubai. And that has led to West Sussex county council coming out in support of the second runway.

The regions like having a choice. They don’t mind going through Schiphol, but these days the options are mostly going through the Middle East and the hubs, and the ticket prices are quite compelling. So the regions value connections to London in the first place, and then choice thereafter.

AFN: The business people in the north love not having to commute through Heathrow. You can travel to Singapore through Frankfurt, and the route Aberdeen are happiest with, is their Aberdeen-Frankfurt flight.

SW: Yes, they tend to be ambivalent as to where they fly through. It’s the cost that makes the decisions.

KK: Dubai simply can’t believe that we aren’t expanding Heathrow. Because they think very simplistically, in terms of Heathrow being number one in the world when it comes to international flights. They are desperately trying to get to number one themselves, and don’t understand why we are willing to give that up.

SW: But there are things that have changed. For example with the Emirates A380 you don’t need to go through Europe at all – you can go straight to Dubai from San Fran. The technologies that are now being used have got a range that was unthinkable before. So you can’t look in the rear view mirror at the countries that used to be a geographical advantage, and how things used to work, and expect that to protect you for the future. It would be naïve in the extreme to do that. Technologies have changed, and actually being in Istanbul or the Middle East will be a major advantage in the future.

AFN: The French, the Germans, the Americans and the Spaniards, they’ve all built lots of runways.

SW: Stansted has tried and failed. I know because, candidly, it was Alastair and I who tried there. Heathrow has tried and failed. Gatwick is the only one left that might work, and that has that blend of traffic.

AFN: You do see a resurgence of ambition. I’m a massive New York nationalist, but it now seems rather sleepy compared to London. And the size of the building sites around London now too. There is nothing like that in NY at the moment. Behind Oxford Street, in Victoria, in Battersea. It is really now recognised that it has taken over from NY as the global capital. And our aviation policy needs to recognise that.

Tags: Davies Commission, Gatwick Airport, Stewart Wingate, UK politics