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“Hub argument? Frankly, it’s wrong”

DeAnne Julius, former chief economist at British Airways, on why she has changed her view about how to resolve the capacity crunch.

Q. What do airline passengers want?

A. Three things. First, convenience getting to and from the airport. Second, a direct flight from London to wherever it is they want to go. And third, the lowest fares that are compatible with those first two things. They want to be able to get on a low-cost airline if that’s the quickest and easiest way to get where they are going. And they want airport charges to be as low as possible.

Q. How do those passenger needs inform the debate on capacity?

A. If we take convenience, the ease of getting to Gatwick will be greater for most of the people living in central London. Gatwick will be connected to Crossrail via Farringdon station; it takes 30 minutes to get to Victoria, more or less the same to get to London Bridge; and expansion plans will mean there is a train from Gatwick to central London every three minutes. Further, the disruption from roadworks that the Heathrow solution would cause – tunnelling under the M25 and redirecting the A4 – is really a big negative for the masses of drivers who use those already congested roads every day.

Q. Heathrow is London’s hub airport. It’s the airport that needs expanding.

A. Twenty years ago, I believed that, too. But the truth is the industry has developed in a very different way from what we projected. The big growth in air travel, certainly in the London area, has been low-cost, short-haul travel. It has not been hub-driven growth. Transfer traffic in the London airport market is about 14 per cent of total passengers today, whereas it was more than 20 per cent when I worked at British Airways. That trend will continue. London, according to the Airports Commission, is already the best-connected city in the world, so it’s not as if we are Dubai and need the connections.

Q. So is the hub argument overstated?

A. Frankly, it’s wrong. It’s fine for small cities but not for international cities like London. It’s an argument of the past, not the future.

Q. How can we possibly make forecasts when what we thought 20 years ago turned out to be wrong?

A. Any time you try and forecast that far ahead you are subject to changes in technology, passenger preferences or demography. But if we are saying there is going to be a reversal of the trend of the past 20 years, then we have to come up with a scenario to explain what would cause that. What will not change is the technology that we have already – aeroplanes that can fly long distances without stopping at hubs. Passengers will continue to prefer direct flights over hubbing solutions. And most passengers are tourists. That’s where the growth has been, partly because people have got richer in other parts of the world and because of the growth of the low-cost airlines. That’s not going to go away.

Q. Isn’t the real money to be made from the business traveller?

A. Certainly the profit per passenger is a lot higher. But business travel is under competitive threat and the low-cost carriers are trying to grab some of that market. EasyJet has been pretty successful in this. I read that 25 per cent of their passengers are now on business. I certainly fly easyJet from time to time when I’m on business.

Q. How do you make a judgement about an airport’s ability to deliver when all you have is plans on paper?

A. Deliverability is partly technical, partly political and partly financial. As for technical deliverability, I have confidence in the feasibility studies. At Heathrow, where they have to tunnel under the M25, that’s a disruption and a financial problem, but it’s not a deliverability problem. In terms of the financial deliverability, the Gatwick estimates are less than half the cost of the Heathrow estimates and it says it can fund it without public money. Heathrow admits it will need public subsidy and it’s not yet clear how much. Then when we get to the general politics, it’s about noise and air pollution, and there, too, Gatwick has a huge advantage. And that’s really why I’ve changed my own mind.

Q. When did your view change?

A. I read the first Davies Commission report because I wanted to see if my own demand projections [as chief economist at British Airways] had held up or not. It was not something I’d followed and I was surprised by how the numbers had changed.

Q. What’s been the biggest change in the airline industry since you left it in 1997?

A. The competitive landscape. For European travel, which is 70 per cent of the total, low-cost airlines like easyJet and Norwegian have taken business from the big carriers and grown the overall market. For long-haul travel, the big competition is from Middle Eastern airlines with  wealthy government owners who have built huge hub airports and offer low prices to attract transfer passengers. It has changed completely. Before, we were in a mindset that was all about the big carriers – British Airways against Air France against Lufthansa against Delta.

Q. You have said in the past that Gatwick offers an underappreciated challenge. What did you mean by that?

A. The economics of airlines are pretty complex and we use terminology that the average politician doesn’t really understand. Therefore, the default position once you accept that you do need extra capacity somewhere in the south-east is Heathrow. I think that’s the wrong decision because of these various changes to the airline industry. And it’s a big chunk of money for the British taxpayer. It’s very important we get it right for London and that’s why I’m wading into the debate from the sidelines. 

Dame DeAnne Julius was a founder member of the Bank of England’s Monetary Policy Committee and chief economist at British Airways between 1993 and 1997.

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

Dame DeAnne Julius was a founder member of the Bank of England’s Monetary Policy Committee and chief economist at British Airways between 1993 and 1997.