4 AUGUST 2014

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Article from BTNews 4 AUGUST 2014

ON THE SOAPBOX: Vernon Murphy and Heathrow

Vernon Murphy has been a key contributor to Business Travel News in recent times, either 'ON THE SOAPBOX' covering airlines and HS2, or 'ON TOUR', with his ancient railways hat on.

With great sadness we report his passing (see below) but he did leave this interesting summary of the London airport scene, which very much stands up to scrutiny.  It is typically Vernon, well thought out and to the point.

He will be missed, not only by his family, but by his many friends in the transport industry.

The Airports Commission’s review into airport capacity and connectivity in the UK included in its remit the issue of the “Heathrow Hub” and how changes in the worldwide airline industry such as Low-Cost Carriers (LCC) and the opportunities for more point to point long haul routes using the new generation of long range twin jet aircraft might impact on its future.  The three projects shortlisted by the Commission were at Heathrow and Gatwick but it also decided to look further into a new four-runway hub airport on the Isle of Grain which would replace Heathrow.

The use of the term “hub airport” covers a variety of operating models.  In its simplest form the hub is an airport where an airline bases a number of aircraft and operates a network of routes.  So Ryanair has a hub at Stansted, easyJet at Luton and Liverpool and so on around the country.  In fact the LCC model is very adaptable to opening (and closing!) hubs all over Europe with minimum difficulty although typically these hubs exclude guaranteed transfer connections between flights.

Heathrow is now the UK’s only major transfer hub and is one of Europe’s main international transfer hubs alongside Amsterdam, Frankfurt, and Paris Charles de Gaulle, with hubs also developing at Munich and Madrid.  However at Gatwick the major based airline – easyJet – has an “unofficial transfer business” with passengers changing flights at their own risk, whilst BA has normal bookable connections.  Interestingly Norwegian, another LCC with a hub there, is looking to promote connections from its European flights onto its new services to the USA.

There is nothing recent about international transfer airports – by the early 1960s both Swissair and KLM had long haul route networks much larger than could have been supported by their domestic markets.  They achieved this through good timetabling and quality of service – IATA kept close control of airfares!

However international transfer hubs are a different model to the domestic “wave” transfer hubs in the USA – of which Atlanta with five parallel runways is the world’s busiest airport and presently the ultimate transfer hub.  The very intensive wave patterns of flights at those domestic “fortress” hubs (five or six times a day) require massive investment in runway and gate capacity and slick operations by all the agencies involved at the airport to ensure the large volumes of passengers with short connection times are handled quickly and reliably.

At international hubs passengers have much more hold baggage than domestic passengers and they, together with their baggage, have to go through full security processing at the transfer airport which makes short connecting times between flights difficult to achieve.  And that is without taking into account the effects of upper atmosphere winds varying from day to day have on the arrival times of long distance flights. 

On long haul routes daily frequencies do vary far more both because the small aircraft used to provide frequency on lower volume short distance routes do not have the range to fly on thin long haul services and for many routes time zone changes restrict the scheduling period.  So to New York British Airways and American (oneworld alliance) offer close to an hourly frequency for most of the day whilst to Chengdu BA flies only just five times a week. 

All this means that the “wave patterns” of connecting flights at international transfer hubs are often less pronounced and identifying specific transfer flows can be more important.  For example Star Alliance carriers SAS and Air Canada have well established transfer flows through Heathrow.

The proponents of growing the London hub point to two advantages for the business market – the additional passenger volumes from transfer passengers enable much better frequencies on long haul routes and for some destinations service would not be viable at all without these extra passengers.  The objectors claim that filling airports with transfer passengers makes bad use of available runway capacity, results in an overconcentration of flights on the trunk routes (New York is the prime example with 30 a day to Kennedy and Newark), works against the development of direct routes from regional airports and creates unnecessary disturbance and pollution to local residents. 

The supporters of a London transfer hub are divided between those advocating expanding Heathrow and those for replacing it with a new four-runway Thames Estuary hub.  The two are not compatible – no city worldwide has two major transfer hub airports although uniquely Chicago O’Hare has two hub and spoke based airlines – American and United.  The Edward’s Committees second London hub at Gatwick in the 70s and 80s was not a success primarily because most premium fare passengers preferred Heathrow and chose Gatwick only when there were no direct flights from Heathrow.  Yet there were many successful long haul routes from Gatwick which only migrated to Heathrow when liberalisation subsequently allowed this.

In early April the Institute together with New London Architecture and Transport for London co-hosted a seminar at which a senior delegation from the City of Denver delivered presentations on Denver’s new hub airport which opened in 1995 and the economic benefit that followed on from this.  Mayor Michael Hancock, the Manager of Aviation at Denver Airport Kim Day and Stephen Kaplan the City Attorney at the time of the negotiations for the new airport gave lively and illuminating presentations on the background to, the problems faced by and the benefits from their new hub airport which is the fifth busiest in the USA.

The project was delivered in the face of legal challenges from its main airline on top of other issues such as ownership of the new site by the city and funding the massive development.  Today the Mayor emphasised that you could not put a dollar value on the worldwide exposure that the new airport gives to Denver whilst the old airport site has become an expanding development area. 

To the supporters of a Thames Estuary site this was clear evidence for their view that Heathrow could be closed and successfully relocated to the East.  A lively question session followed which raised some doubts.  This established that the new airport is around 15 miles or so from and on the same side of the city as the old airport (the Isle of Grain is over 60 miles from Heathrow by the M25) and that public ownership considerably facilitated the closure of the original airport and gaining agreement for the land to build the new one (as did tax free bonds for the funding of the new airport). 

This leads onto the future of BA’s hub at Heathrow.  Following the purchase of BMI two years ago it has been apparent that BA has sufficient slots for the short and the medium term without additional runway capacity at Heathrow.  Even before then it was doubtful whether a shortage of slots was really preventing BA starting new routes to the BRIC countries – in the two years before buying BMI BA had found slots for new routes to Paris Orly, Gothenburg and Bologna. 

BA’s hub model is to operate around 70% of flights on short haul routes feeding into the more profitable long haul route network and at times of the year at least 50% of Terminal 5’s traffic is transfers.

Heathrow Airport itself is a more complex hub with, at the time of BMI’s demise, transfers making up around 36% of total passengers and a third of those transfer passengers not travelling with BA.  Since then the transfer passenger share has dropped to just below a third although the Star Alliance carriers must be hoping to reverse this when they take occupation of the new Terminal 2.  It is the non-alliance and smaller alliance partner airlines that have most difficulty obtaining slots at Heathrow – Columbia’s Avianca and Aeromexico waited four years or so to get a limited number of slots there rather than fly into Gatwick.

But the London hub and the other European hubs are increasingly under attack from the three Gulf hubs and Istanbul – there is now only one flight a day to Australasia by any European airline (BA to Sydney) and Emirates alone flies from six UK airports.  When added to the long-standing competition from airline hubs in Singapore and Hong Kong this does indicate a continued significant shift eastwards in the centre of gravity of hub activity. 

London is ideally placed as the European hub airport for travel across the Atlantic but not so well located for destinations to the East. 

With the number of major international transfer hubs continuing to increase – China Southern’s (Asia’s largest airline) hub at Guangzhou is the most recent – this trend opens up the possibility that BA’s Heathrow hub will become increasingly “niche” majoring on North America and some Commonwealth routes, with smaller twin engine jets carrying mainly point to point traffic on other long haul routes.  But for the UK economy it would be a large step into the unknown to write off the importance of retaining a London hub.

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