Date published: 6th March 2015

Dame DeAnne Julius, former chief economist at British Airways, explains why the current expansion debate is shaking up old assumptions

                    

Dame DeAnne Julius:

"On an issue that has raged for decades, it is easy to fall back on old, unexamined assumptions and end up with the wrong conclusions

"I was guilty of this myself when the Davies Commission was established to look at London’s need for airport expansion.  Like many others, I initially assumed that the only sensible alternative was another runway at Heathrow.

"In the 1990s when I was chief economist at British Airways, my team developed the demand projections for Terminal Five, which was subsequently built.  At the time it seemed inevitable that the next stage of expansion would be a third runway at Heathrow. 

"But in fact the airline industry has evolved in a very different way from our projections.   As the great economist John Maynard Keynes reportedly said: “When the facts change, I change my mind.  What do YOU do?”   

"Our biggest mistake was expecting that growth in air travel would continue to be driven by hub-to-hub competition for transfer traffic.  However, the real growth in recent years has not been hub-driven – for cities like London it has been through increases in point-to-point passenger travel, especially to and from Europe. 

"We failed to foresee the success of the low-cost, short-haul airlines.  Largely because they have grown so rapidly, the share of transfer traffic in the total London airport market has shrunk from over 20 per cent when I worked at British Airways, to only 14 per cent of total passengers today.

"That trend will continue as long as the British public enjoys foreign holidays and airline competition keeps them affordable.  Business travellers also benefit.  The Airports Commission itself notes that London is already the best-connected city in the world.  We do not need the extra noise and disruption that the state-owned, subsidised carriers in the Middle East impose on their citizens with airports open all night in order to attract transfer traffic. 

"For a city the size of London, the case for an ever larger hub airport is one that belongs to the past, not the present, and certainly not the future. 

"With the Gatwick alternative, London now has the exciting opportunity to create two hubs - by this I mean two large ‘gateway’ airports serving partly overlapping but partly different catchment areas.

"Not only could this be achieved for substantially lower cost than expanding Heathrow into a mega-hub, the benefits of two world-class airports to the west and the south of London would also be huge – greater competition for Londoners bringing more choice and lower fares for passengers; better access and more jobs for households and businesses to the south and east of London; greater resilience for the London aviation sector in case of bad weather or major incidents; and a genuine choice of two London gateways for UK regional and international travellers.

"As an OECD survey said just last week: “It is very important that the government takes a final decision to tackle airport congestion while ensuring strong competitive pressures among airports”.

"Why put all our eggs into one very expensive basket when we have the opportunity at Gatwick to provide a better balance of the benefits of capacity expansion while substantially reducing the total environmental impact? 

"The Airports Commission is undertaking more sophisticated economic modelling than we had available 20 years ago.  But greater sophistication doesn’t remove the inherent uncertainties around long-run future predictions – especially those involving competitive actors in a dynamic marketplace. 

"Perhaps the key lesson from my own flawed projections is the value of building diversity and flexibility into infrastructure plans to limit the future cost of being spectacularly wrong."