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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.


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

Is that victory he's pointing to? Photo: Getty Images
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Just how good are Jeremy Corbyn's chances?

Jeremy Corbyn continues his remarkable surge. But how worried should his opponents be?

Jeremy Corbyn continues his remarkable campaign. Our rolling tally of constituency nominations has him at 28 - ten behind the bookmakers' favourite Andy Burnham and six ahead of Yvette Cooper. Liz Kendall, the modernisers' candidate, is in a distant fourth place.

It's spooked Labour First - the independent organisation of what used to be called Labour's "old right", into calling for a joint line against Corbyn from supporters of Burnham, Cooper and Kendall. Are they right to be worried? 

It looks increasingly likely that trade unionists will make up just a tenth of the total - well short of the third of the vote they made up under the old system, weakening Corbyn slightly (he has the endorsement of Unite, which makes up the bulk of those trade unionists). My initial instinct is that CLP nominations would help the party's left and old right slightly, boosting Corbyn and Cooper's soores. They are, after all, as one sympathetic MP observed, "the ones who really like meetings". 

But from checking the figures last time it appears that my instincts may be wrong. David Miliband got 40 per cent of CLP nominations - close to his final share of 44 per cent among party members. Ed Miliband got 38 per cent from CLP nominations and 30 per cent from party members. Ed Balls got four per cent of CLPs and 10 per cent from members. Diane Abbot secured just four per cent of CLP nominations and seven percent of the vote. And Burnham got 11 per cent of the vote and four per cent from members. 

So while it's not a perfect guide - and my hunch is that the hostility towards Kendall on social media will mean her supporters eschew these meetings, meaning she will outperform her nomination total - recent history suggests that it is a half-decent one. I predicted shortly before Corbyn made the ballot that he would "surprise a lot of people" with how well he did in the race. I still don't think he can quite make the winning post - but the prospect of a Corbyn victory should be taken seriously.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.