Fares more likely to be lower with expansion at Heathrow
Expanding Heathrow will deliver greater reductions in ticket prices for passengers than expanding Gatwick, according to new research published today by the Airports Commission.
The findings are contained in new independent analysis conducted for the Airports Commission by the OECD and SEO economic research.
The research finds that even in the most favourable scenario for Gatwick, where the future of aviation is focussed on low-cost long-haul travel, Heathrow expansion will deliver greater benefits for consumers than Gatwick expansion.
The report puts the total benefit to passengers of expanding Heathrow over expanding Gatwick at £821m per annum in this scenario.
Demand outstripping supply at full Heathrow…
When passenger demand to fly exceeds the physical capacity of airports, ticket prices rise to balance capacity and demand. This results in higher prices for consumers than if there was sufficient airport capacity.
The report finds that the reduction in these “airline scarcity rents” is the most important element of the consumer price benefits that will flow from airport expansion.
Heathrow has been full for ten years and this capacity constraint means supply has not been able to keep pace with demand.
In its appraisal document last month the Commission’s recognised that a reduction in excess demand at Heathrow will contribute to lower fares.
It also found that “The potential of Gatwick expansion to reduce fare levels due to constraints in the London airport system is expected to be lower than at Heathrow across all scenarios as excess demand at Gatwick is currently lower than that at Heathrow.”
Today’s new research supports that conclusion.
Heathrow Chief Executive, John Holland-Kaye said: “This research shows that expanding Heathrow will deliver lower fares, new airline competition, and a greater choice of routes. It finds that the consumer benefits of expanding Heathrow are greater than expanding Gatwick in any future scenario”.
*1. The research “Impacts of expanding airport capacity on competition and connectivity” has been published today by the Airports Commission. The research was conducted by the International Transport Forum of the OECD with SEO Economic Research.
2. Tables 4.1 and 4.2 of the research show that the total benefits to passengers of different expansion options. The ‘Low-cost is King’ scenario, which is that considered most favourable to Gatwick’s case, shows consumer benefits of Heathrow expansion at £3,943m and consumer benefits of Gatwick expansion at £3,122m
3. Airports Commission appraisal document quotes from Business Case and Sustainability Assessment for Heathrow (Para 1.50, p.23) and Gatwick (Para 1.48, p.22).
Read the full report here.