London hub airport cannot be built without public subsidy

24 January 2013

The Transport Committee publishes research commissioned from Oxera.

Under most scenarios, expected revenues from a new hub airport for London would be less than the expected costs of construction, and the development of such a facility would not be commercially viable without substantial support from the taxpayer, says new research conducted by economic consultancy Oxera for the Transport Select Committee.

Chair's comments

Publishing a report setting out the findings of research commissioned for the Transport Committee inquiry into the Government’s aviation strategy, Committee Chair, Louise Ellman MP said:

"We asked Oxera to develop a set of questions for the Committee to use to probe the evidence put forward by witnesses to our Aviation inquiry. This work was framed specifically to help the Committee assess the commercial viability of a new hub airport by asking whether any future owners could make adequate returns sufficient to obtain finance.

The results suggest a new airport would require public investment and have considerable impact on Heathrow and other London airports. The research findings also shed significant light on the scale of investment required to deliver essential related surface transport links for any new airport.   

We hope this work delivers something new to a crucial debate. It doesn’t provide answers but it does set out in a systematic way which areas of questioning the Davies Commission must address and answer fully."

The questions highlighted in this research will now inform the work undertaken by the Transport Committee when they take further oral evidence for the Aviation Inquiry. The next session takes place on Monday 28 January with diverse witnesses including those involved with and opposed to the development of hub airport proposals. 

Background notes

The Oxera methodology makes reference to a number of specific hub airport proposals, but focuses only on the overall rationale for the concept of a new hub and does not evaluate   any or each proposal in detail. This ‘proposal-neutral’ approach means that revenue and cost estimates set out in the research findings have been calibrated using broad conceptual numbers, rather than proposal-specific estimates.

The analysis developed by Oxera includes:

  • Scenarios taken from primary sources that address demand, airport and surface access construction costs, and landing charges are all used as objective inputs to model the expected cash flows associated with a new hub airport.
  • A range of designs for any new hub airport, covering aspects such as the number of runways and policy options towards existing airports.

The Oxera research does not examine whether government support for such an airport would offer good value for money. Nor does it attempt to offer a full social or environmental cost benefit analysis.

The results of this research should not be considered on a stand-alone basis since this work has been commissioned within the context of wider UK aviation policy and in line with the  goals of the Transport Committee’s inquiry. 

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