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South East England runway decision – UK Prime Minister Theresa May could select a radical solution

The end really does (once again) appear to be in sight for the interminable decision on where to approve additional runway capacity in the UK, with the choice down to two proposals at London Heathrow Airport and one at London Gatwick Airport.

Much has changed since the Airports Commission first began to investigate the matter, and it is now 16 months since its final report was released. Governments have changed, new personalities have emerged, and the UK has voted to leave the European Union since then.

Politically it is a whole new ball game, and while one of the two Heathrow options remains the favourite, an entirely new solution is not out of the question.

It is now 16 months since the British Airports Commission, headed by Sir Howard Davies, delivered its verdict on how additional airport runway capacity for the United Kingdom should be provided. The Commission’s findings, which took three years and a reputed GBP25 million to produce, opted – as expected – for a third runway at London Heathrow Airport.

Commission’s report created more, rather than less, uncertainty

While the Commission at least left the door open for London Gatwick Airport to ‘play a role,’ and for other London and regional airports to do so as well, it was clear that Heathrow was very much the preferred option.

But the Commission’s recommendation, if anything, did less to remove the ‘uncertainty’ than to stoke it even further.

Almost immediately the anti-Heathrow lobby went into denial mode, threatening that expanding that airport further would go against European environmental regulations; would cause insurmountable surface traffic issues; would divert resources from where they were more urgently needed and would cost far too much (irrespective of who would pay for it).

That it would ‘never happen’, according to the ex-Mayor of London and now Foreign Secretary (who has been banned from the Cabinet Committee tasked with making the ultimate decision by two Prime Ministers now). That it was simply ‘undeliverable’ according to a battery of politicians of all parties who had finally found a common cause (and who – coincidentally – largely represent constituencies on or close to the main flight paths).

Support for Heathrow Airport from the regions continued to grow

At the same time those unexpected regional supporters of the Heathrow case while it was first being built re-emerged to be an unlikely ally of the capital’s western fringe airport. They were in the form of chambers of commerce and smaller regional airports, all of which demand either an expanded Heathrow service level to tap into long haul ‘emerging markets’, or the instigation of a service where one does not exist already.

Such is the groundswell of indignation concerning the lack of a Heathrow route (specifically) that you might think that regional business travellers had no other method of getting to those markets; as if purpose-designed transit airports or terminals such as Amsterdam, Paris de Gaulle and Frankfurt did not exist. There are flights to Amsterdam from just about every UK airport that matters.

The degree of resentment is such that some rather strange logic is sometimes being applied. For example, a recent claim by the CEO of Liverpool John Lennon Airport that, “Liverpool has missed out on a Heathrow link for over 24 years, not because there isn’t demand, but because Heathrow is full”. On the face of it that appears a reasonable observation - although the smaller Leeds Bradford Airport acquired, retained, and has since built up such a connection (by British Airways) – almost four years ago.

So there has certainly been a positive response regionally at Heathrow from its recent ‘Brexit Boost’ campaign, which aims, inter alia, to add 25,000 flights a year while a third runway is being built, with ‘ring-fenced’ capacity for additional domestic connections and financial inducements for domestic travellers who travel from it to a UK domestic city.

It is a policy which one might think would attract Prime Minister May, who appears this week at last to have accepted her own mantra of ‘Brexit means Brexit’ (whatever that actually means), and to have realised belatedly that the government needs to prepare for it economically as well as politically. Heathrow ticks most boxes in respect of aviation where ‘Brexit’ is concerned.

So from that viewpoint Heathrow has the upper hand at the moment, but in today's UK circumstances can change on a weekly basis, or even more frequently than that.  It was only a handful of months ago that Heathrow was under attack from the imposition of further, post-Davies studies on air quality, and from warnings by the National Audit Office about costly infrastructure projects (Gatwick’s second runway cost could be as little as one half of Heathrow’s third, and there are doubts as to whether Heathrow Airport Holdings could raise the GBP4 billion to GBP8.5 billion equity component of the expansion cost; it might require a Government guarantee).

The warning from the NAO came despite the fact the government set up an independent National Infrastructure Commission in 2015 to enable long-term strategic decision-making to build effective and efficient infrastructure (!). In other words: build it - but watch your pennies.

Heathrow wins independent scientific support on the air quality issue

Crucially, the air quality issue at Heathrow may have been resolved, with leaked documents from an independent report by Cambridge University being coincidentally revealed (06-Oct-2016) to confirm that a third runway could be built there without breaking EU pollution regulations. The report deals more with surface traffic pollution than air traffic. That leak came one day after London’s Mayor Sadiq Khan (Labour) wrote a last gasp letter to Prime Minister May reiterating calls for expansion at Gatwick Airport instead, partly on the grounds that it would “keep air quality safe and within legal limits”.

So Heathrow may have won the environmental argument as the bell rings for the final round of what has become the aviation equivalent of a cage fight.

But on the other hand the UK will soon not be in the EU anyway, and replacement national air quality legislation may be far less draconian.

Moreover, an expansion of Gatwick has the support of all the opposition parties that are prepared to see any airport expansion at all (the Greens are totally against it and the Liberal Democrats very uncomfortable), while many Conservative (governing party) MPs also endorse it. Heathrow has variously claimed that between 60% and 75% of MPs support its expansion but the key non-government leaders do not, joined by some within the governing Conservative Party as well.

If Prime Minister Theresa May chooses to give a free vote, allowing members to vote according to their own beliefs rather than following party policy, there could be "May-hem". The spectacle of another spat between Ministers in the House of Commons, bickering as they did during the EU referendum campaign, is hardly appetising.

Gatwick put up a strong case, but it may not be enough

Meanwhile, Gatwick Airport has been capitalising on Heathrow’s discomfort. A CAPA report was published in Oct-2015 as Gatwick’s campaign to nullify Davies’ recommendation got under way.

See: http://centreforaviation.com/insights/analysis/uk-airport-debate-gatwick-airport-argues-for-a-different-connectivity-approach-for-the-new-runway-245290.

Essentially, Gatwick’s campaign is built around four strands:

  • Lower cost, all privately funded;
  • More rapid deliverability;
  • Less environmental damage;
  • Caters to non-hub, point-to-point flights (‘the future’ as Gatwick sees it), with purpose-designed facilities for self-connection.

Gatwick has put up a good challenge, but it remains to be seen whether it will be enough.

The unexpected change of government personnel could have a major impact

As Decision Day nears (at least according to the new Transport Secretary, Chris Grayling, who stated at the Conservative Party conference on 3-Oct-2016 that the runway decision is "right at the top of my in tray", it is important to look for what recent changes might be the final influence on the decision. It is easy to spot: the difference is the Government itself.

As a direct result of the EU Referendum campaign and vote there has been a total clear-out at the top of the governing Conservative Party. Among the many casualties were the previous Prime Minister, David Cameron, and the Chancellor of the Exchequer, George Osborne, along with a serious candidate for the PM’s job – Michael Gove. The people in government making the decisions are coming to the table with an entirely new perspective on the choices available.

At the same time, the main opposition Labour Party is in total disarray; a second leadership election within a year has just been completed, the Leader re-elected by a massive majority of party members while he has virtually no support to speak of among his own MPs, who consider him incapable of winning a General Election.The Liberal Democrats have disappeared as a political force, while UKIP, which was expected to fill a Labour void, is in the news for all the wrong reasons.

In short, the Prime Minister Mrs May – an EU ‘remainer’ who is at last pushing a start to progressing the ‘leave’ mandate she received – is in the strongest position to exercise her own judgment that any British Prime has occupied in recent history.

She could choose to follow the advice of her civil servants but she has already been found to have a mind of her own – as with her decision to question the partly Chinese-funded Hinkley Point C Nuclear Power Station, despite threatening relations with Beijing.

Business interests still favour Heathrow…

If Prime Minister May follows the advice both of Davies and her own inner circle, and is mindful of recent events favouring Heathrow, she will opt for expansion there. She will do this because the Conservative Party is the ‘party of business’, and most business people want Heathrow'; also because it at least appears to offer a ‘Brexit business solution’. Such a solution would go some way to assuaging the angst in the City of London over the referendum result.

Because of the cost element (despite the beginning of the relaxation of ‘austerity’ measures by this new regime), she could well choose the cheaper and less invasive independent ‘Heathrow Hub’ solution, which would mean that the northern runway would extend westwards and be used as a split runway for simultaneous operations, rather than Heathrow Airport Holding’s own proposal for an entirely new runway to the northwest of the airport.

…But foreign investors would not favour the extended runway solution

The problem with that option is that HAH, which has always rejected it, has now hinted that some of its investors would not be happy with it and would not be prepared to fund it. One of those investors is Chinese – namely the China Investment Corporation (10%).

There has been a history of direct or implied threats over this issue, mainly from some of the airlines, which collectively through their alliances have threatened to restrict operations or even quit London altogether if Gatwick were selected for expansion.

That was always an unlikely prospect, and it is equally unlikely that Mrs May, who is already being compared with her uncompromising predecessor Margaret Thatcher as ‘a lady not for turning’, will be swayed by any further implied threat from a Chinese company.

Alternative scenarios could mean two runways, with further expansion then denied

This is the most likely outcome, said with some confidence. But if Mrs May decides to follow her own instincts as she has already demonstrated the propensity to do, that is where the fun could start. The Prime Minister could simply choose to ignore the Airport Commission’s recommendations on the basis that some of the forecasting has been shown to be totally out of kilter with reality.

For example – the estimate that Gatwick Airport would not reach 40 million ppa or 50 long haul routes prior to 2050. Both goals have in fact been achieved in 2016, one year after the Commission’s final report.

Firstly there is the prospect of the aforementioned free vote in Parliament. There is no way of knowing what that might lead to, other than even more delays. But that would be seen as demonstrating a lack of leadership at a time when the country needs it.

Secondly it is not clear what the new Transport Minister Chris Grayling meant when he said this week: “There are three schemes on the table for us to consider. They're all, in their own way, very impressive.”

Could that be a hint that both HAH and Gatwick Airport might be invited to build an extra runway and compete with each other, if the extended runway was the selected option at Heathrow (thus keeping the overall cost down to close to GBP20 billion)?

On the face of it, such a proposal is a non-starter. Neither of the two airport groups has shown any enthusiasm for actually investing to compete; only for investing to win.

Environmental lobbyists and lawyers would have a field day. Manchester Airports Group, which owns London Stansted Airport, would demand to be part of the action; London Luton Airport too, and Ryanair’s Michael O’Leary, who has his main base at Stansted, would be unlikely to tolerate it.

Looking at it from another angle though, it would kill two birds with one stone. The race would be on to get the first additional runway up and running while the government could make it clear that no further additional runways at either airport would be considered for 25 years (which would be around 2050, already slated for the next round anyway).

Regions and their airports are under renewed focus

It would also leave the government to focus on its renewed commitment to the regions. The Northern Powerhouse project of previous Chancellor Osborne had fizzled out but appears now to have been resurrected, with a broader remit for all of the country, including the Midlands, which had previously been overlooked.

In other words, Mrs May could insist that in line with attempts to decentralise the UK economically, approval for future airport infrastructure would switch to the regions. Probably the greatest support would go towards Manchester and Birmingham airports, which are already committed to large scale expansion and refurbishment.

Such a policy would be linked to the proposed HS3 line across northern England, and the HS2 rail line, which will connect London with Birmingham Airport from 2026 and Manchester Airport later, and which is now all but ‘rubber-stamped’.

Stansted is developing a two-pronged niche as both an LCC base and a business airport for the Cambridge city-region, and could be reclassified as a regional airport accordingly.

Meanwhile other airports could benefit from route development support by both the two main London airports in competition. Scotland, which looks less likely right now to support a second independence referendum, would also benefit from that competition and associated support.

The one issue that would not be resolved of course – in fact it would be made worse by a dual runway solution – is that of ‘pre-funding’, i.e. the airports charging more now to pay for the investment in infrastructure that won’t open for up to 10 years. Those charges would have to be passed on to customers now, and they would then vote with their feet.

There is no easy answer to that problem other than finding the equity funding that could be even scarce in a competitive scenario, or coaxing more debt funding out of the owners.

Of course, neither airport group would have to accept such an arrangement. Either could walk away, leaving the other to the spoils. But would they? 

In short, the UK government is no closer to making a fully reasoned decision on a new Southeast England runway than it was 20 years ago, before the mountains of research, honest toil and political manoeuvring.

The good news is that nonetheless at last a decision - perhaps - is likely to be made.

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