Show Hide image

Rethinking the Debate on Aviation Capacity

The capacity conundrum

For Britain to prosper, competition between our airports matters as much as airline rivalry, says Mike Tretheway, aviation economist.

Q. What drives competition in aviation?

A. One of the key drivers is capacity. That’s the capacity provided by airlines and their fleets, how they move them from one use to another, new entrants coming into the market, and so on. But capacity, especially in the UK, also includes the issue of airport capacity and competition between them. And that’s important because, as research we did shows, when airports compete with each other there is a material impact on fares.

Q. Is that competition between airports a characteristic of all big cities?

A. Some cities have only a single airport, so that limits the nature of competition. A good example is Sydney, Australia. The nearest international airport is Melbourne, a ten-hour drive away. Then you have got markets in the United States such as Chicago, which has two airports but they are operated by the same entity.

Q. So is the perfect recipe competition between airlines but also competition between airports?

A. I’d make a subtle distinction here. My recipe for effective competition is: first of all, competition between legacy carriers; second, between legacy and low-cost carriers; and third, competition between airports. And, significantly, ensuring that there is adequate capacity at the airports that are used by low-cost carriers.

Q. Why?

A. Competition between legacy carriers produces only small benefits. So instead of giving you a 3 per cent reduction in prices, low-cost carriers are the ones [that give you a] 12 to 30 per cent reduction. It would be a big mistake to adopt policies that would constrain the growth of the carriers that are driving price competition the most.

Q. What are those policies constraining low-cost carriers?

A. In the case of the south-east of the UK, where we know that all of the airports are going to hit their capacity in the next ten to 20 years, if you add capacity only where full-service carriers compete, that would give you a very minor impact. You are much better off making sure that the growth will be where the low-cost carriers are.

Q. So it’s not simply a case of increasing capacity wherever you can?

A. As an economist I would say the ideal thing would be to increase capacity in all the airports so we have no constraints on any form of competition. But if you can’t do that for environmental or budget reasons you are much better off putting that capacity where the growth is. And the growth in the UK markets in the last 15 years has been only in the low-cost carriers.

Q. But isn’t Heathrow, as London’s hub airport, where the real capacity problem is?

A. What we want is a wide range of destinations where people want to go. That’s not necessarily a distant destination like Wuhan in China, where a small number of business travellers want to go; it may be high-volume to a destination such as Carcassonne in France. We want a wide choice of destinations where people actually want to go in high numbers. And we want the lowest fares there. Viewing Heathrow as the “real” pinch point is naive, in my view. [The Howard Davies-led Airports] Commission is looking at matters not just in the context of ten years, but in terms of the next 20, 30 and 35 years. And in that context, all of the airports in London are pinch points. So if you are going to add only one runway in the next 20 to 30 years, you have to choose it right. You have to choose the one that is going to have the best impact on the connectivity of the United Kingdom and the price travellers pay. Connectivity at high price is of limited value to the UK economy.

Q. But if the new centres of economic growth are in seemingly remote parts of China, shouldn’t that be where we concentrate our efforts?

A. No. China is not poorly served. As you go into additional destinations within China you are really looking at very low passenger volumes. It’s not as if people can’t get to Wuhan from the UK. They can; they just have to make a connection at some point, whether it’s in Shanghai or Dubai. And most people in the UK don’t want to go to Wuhan.

Q. But isn’t there a greater economic benefit in those small numbers of journeys to places further afield?

A. First, the short-haul destinations aren’t confined to leisure. For example, the Silicon Valley of France is Sophia Antipolis, to the west of Nice. Just take a look who’s travelling there. It’s a lot of  business people. Second, it is very important to have direct services short haul, whereas if you are travelling on a flight that’s going to take 14 hours, you are going to use the whole day travelling in any case. So whether it’s non-stop or you’ve got to make a connection for a one-and-a-half-hour flight, that’s a much less important issue than flying [direct] somewhere two or three hours away.

Q. Do you believe that the benefits of hub airports are being oversold?

A. Yes. After you reach a certain scale of connectivity, you get a little bit of additional benefit but it’s fairly marginal. London is the largest single airport market in the world and it is already very well connected. Simply measuring connectivity by the number of cities is not very meaningful. Better to ask: what kinds of volumes go to those cities and what kind of fares do you have to pay for that access?

Dr Mike Tretheway is the chief economist and president of InterVISTAS Consulting. He is currently engaged as an adviser by Gatwick Airport.


Facts and Figures





To download “Rethinking the Debate on Aviation Capacity”, a New Statesman special supplement created in association with Gatwick Airport, go to

Show Hide image

Putting energy consumers at the heart of action against global warming

By Sacha Deshmukh, Chief Executive Smart Energy GB.

At the end of this month, representatives from more than 190 nations will gather in Paris to try to reach a new global agreement on talking climate change.

Heads of government will make solemn promises to curb greenhouse gas emissions in an attempt to avoid the most dangerous increases in world temperature.

These commitments, though, will only be as good as the technological plans each nation has to meet their targets.

Economic growth and increased living standards typically require more energy, unless ways can be found to use existing supplies more efficiently.

As leading expert Dieter Helm argues in a new paper for Smart Energy GB: “without massive technical change, global warming cannot be cracked”.

Smart meters are an important part of the solution to climate change, according to Professor Helm.

This month, leading policy makers, environmentalists and energy experts will be gathering for our Smarter Britain, Smarter Environment event in London.

The meeting will discuss the role of smart technology in tackling climate change.

Smart meters will be offered to every home and microbusiness in Britain by 2020. In all around 53 million new gas and electricity meters will be installed.

This roll-out, unprecedented in its scale and ambition, is part of a profound set of changes to the energy market over the coming years.

There will be great focus in Paris on the way in which our energy is generated, and whether power comes from renewables, nuclear, shale, oil or coal.

But just as critical is the way in which energy is consumed by millions of homes and small businesses.

This is the vitally important “demand side” of the energy transformation that is currently underway.

Smart meters provide fast and accurate data on energy use of households.

For the first time, bill-payers are able to see exactly how much their electricity and gas use is costing in pounds and pence.

Estimated bills and inaccurate meter readings are fortunately being consigned to history.

Households are starting to engage with their energy needs much more effectively and consistently.

People can see – almost in real time – how they can save money by changing the ways they use electricity and gas.

New tariffs will, in future, also allow bill-payers to shift their most intensive energy use to times for example at the weekend or overnight when costs are lower. 

But, more than this, smart meters are enabling a much wider system-wide transformation of energy transmission.

The information from millions of homes and businesses can be used to match supply and demand more efficiently at the city and national level, as part of the “smart grid”.

This is absolutely essential, if we are to rely more on renewable sources of energy.

Solar and wind energy are intermittent. The most abundant supplies are rarely produced exactly where and when they are most needed.

So better ways must be developed to store energy and distribute it over larger areas – and even between nations.

Smart technology can also help at the very local level, by supporting the decentralisation of electricity generation.

The new meters will allow households to know exactly how much energy - in pounds and pence – their solar panels or turbines are producing.

With greater electrification (of heating, appliances and transport), these challenges become even more relevant.

If millions of people come home and plug in their electric cars at 6pm, the energy systems of the future must be able to cope.

These changes are genuinely exciting.

Smart technology not only provides environmentally friendly answers, but also supports products that consumers really want.

Consumer engagement with energy via smart meters is now providing an opportunity to bring action on climate change into our homes.

This article first appeared in the 05 November 2015 issue of the New Statesman, The end of Europe - test