Heathrow demand will be 'lost' before new capacity is in place

The UK Government is ignoring the threat of hub capacity constraint and its damaging impact on the nation’s intercontinental connectivity at its peril, according to London Heathrow airport chiefs.
In a submission to the special commission established to identify and evaluate how any need for additional capacity should be met in the short, medium and long term, Heathrow says the UK risks permanently losing business to other major hub airports around the world.
The Heathrow hub provides the UK with the vast majority of its intercontinental connectivity, with direct connections to 77 destinations not available from any other UK airport. Over 90 per cent of the South East’s long-haul passengers travelling for business fly from the London airport.
With Heathrow already operating at its permitted capacity, the UK Department for Transport (DfT) forecasts that by 2020 there will be 11 million of un-served passenger demand at Heathrow. By 2030 that will rise to 28 million.
“More hub capacity is urgently needed and whilst longer term demand forecasts are inherently uncertain, the more immediate demand case for a three runway hub is very clear,” said Heathrow which adds that any potential case for a fourth runway in the longer term is highly uncertain and may not materialise.
Heathrow said that while DfT forecasts provided a good high level estimate of future passenger demand, there are two important areas in the model’s approach to allocating traffic between UK airports that need strengthening.
Firstly, Heathrow said the model must take account of network or hub economics and secondly it must properly account for transfer passengers.
“The DfT forecasts incorrectly assume that with Heathrow constrained, long haul demand, and to an extent transfer demand, will get picked up at other UK airports,” said airport chiefs. “In practice, network economics and the related airline business model, make this highly unlikely. Instead overseas hubs and economies are the beneficiaries.”
Heathrow said this issue is leading the UK Government to underestimate the very pressing nature of the hub capacity constraint and its damaging impact on UK intercontinental connectivity.
“With weaker connectivity comes lost trade opportunities. Frontier Economics estimates that the UK may already be forgoing trade worth £14bn p.a., 0.9% of UK Gross Domestic Product (GDP). Once lost, these opportunities are much harder to recover as relationships, systems and investments become more entrenched elsewhere,” it said.
Heathrow’s own forecasts show constrained traffic growth of ~0.5-1% p.a. at the UK hub, with growth slowing as the hub capacity constraint tightens.
“This low level of growth reflects the reality that Heathrow is already operating at over 98% of its 480k air traffic movement cap. Heathrow’s unconstrained central case forecast for hub demand growth to 2030 is 2.4% p.a. This is close to the DfT forecast for Heathrow for the same period,” states Heathrow.
It points to other reputable forecasters that also anticipate long run growth of 2% to 3.5% although Heathrow said it regards any forecasts to 2050 to be too uncertain to be a reliable planning tool at this stage.
“Whilst the UK is already suffering from hub capacity constraint, the current political and planning landscape means that it will likely be 2024 before significant additional hub capacity could be operational in the UK, with Heathrow being the location where this can be delivered the quickest,” states Heathrow.
“By 2024 the UK’s hub will have been capacity constrained for two decades and a significant proportion of the un-served hub demand will have been lost, either for good, or for the very long term until it can be recaptured. Overseas governments, airlines and hub airports, such as Dubai and Istanbul, are already making major investments that exploit the UK’s hub capacity constraint. As a result, Heathrow anticipates that adjusted unconstrained hub demand will be somewhat lower than forecasts might suggest. It is important that the Airports Commission’s assessment of need for additional hub capacity does reflect that some hub demand will have been lost by the time new capacity is in place to serve it.”