Expert comment Last updated 05 March 2019
Dr Steve McCabe and Beverley Nielsen from the Institute for Design and Economic Acceleration (IDEA) explore the vital role airports play in supporting our economy.
Despite what was predicted after the attacks on New York on September 11th and internet technology making ‘seen’ communication easier through, for example, Skype, air travel is more popular than ever for both business users and those seeking pleasure. Though there is none of the glamour associated with air travel that characterised its early years, we still love to fly even if this means being subject to cramped seating and carrying our own bags as is now standard experience with so called ‘budget operators’.
Though we may have some choice in the operator that will fly us to our intended destination, the airport we fly from (and therefore to), is usually governed by cost and convenience. Normally, regardless of our reasons for travel by air, it can be assumed we’ll use the airport closest to home and, naturally, that the destination airport is convenient to where we want to arrive. Airports, therefore, are utilitarian in that they are simply places we must pass through to board our flight.
It’s safe to say that it’s a rare person who seeks to spend more time at an airport than is absolutely necessary. Security considerations after the atrocities using aircraft as weapons and attacks on airports mean that before we can relax there are now elaborate but utterly essential checks we undergo. Only then can we get to the departure lounges and enjoy a meal, drink and, usually, browse through the variety of shops that exist in every major airport.
Unsurprisingly, such outlets anticipate that excitement prior to the journey, especially among those going on holiday, will result in them spending as much as possible. Restaurants, bars and shops are not located in airports by accident, they must make sufficient revenue to cover their costs which includes rental. Rental income has become a significant factor in the successful operation of airport that are, it should be noted, privately owned and seek to return ‘acceptable’ return on capital to investors. However, just because an airport is privately-owned, does not mean that it has absolute control over its future strategy.
Though all British airports are now privately owned this was not always that case. The historical development of air travel – and the decisions as to where they should be located – was controlled by the government through the Ministry of Defence (MoD). Logically, an airport was located on ‘green fields’ allowing enough space for the runway and, for safety, though not within the confines of the built-up area containing the population they served, sufficiently close to easily reach by car or public transport.
Subsequent to the second world war, during which aircrafts proved strategically vital, air travel as well as aviation for transport of goods increased in popularity. Correspondingly complexity also increased to the extent that the government wanted to relinquish direct control though not ownership. As such the state-owned British Airports Authority (BAA) was created through the Airports Authority Bill in 1965 by then minister for aviation Roy Jenkins.
Privatisation of airports occurred as a consequence of the Thatcherite revolution to reduce state ownership and involvement. Selling shares in BAA was made possible by the Airports Act 1986. Allowing airports to be owned by investors, it was asserted by advocates of privatisation, would enable a more entrepreneurial spirit to prevail that ensure they were operated and manages more efficiently than possible under the bureaucratic BAA. However, though privatisation heralded a radical change in airport ownership and management, the Airports Act 1986 included what was known as ‘traffic distribution rules.’
In what might have served as a warning to those who assumed that privatisation of airports would ensure unfettered control by owners over how to develop their assets, the traffic distribution rules were justified as being temporary to ensure that airports that were considered dominant, particularly in London, might abuse their semi-monopolistic position. As such regulations were included to maintain control over the way in which flights are allocated to airports them as well oversight by the Civil Aviation Authority on prices that can be charged to airline operators when using facilities.
As many commentators contend, despite the rhetoric of the Thatcher administration, privatisation of airports was somewhat less full-blooded than might otherwise have been anticipated. At face value this may seem a good thing when, for example, we consider our experience as customers of utilities. Like utilities and, ‘treasured’ manufacturers, British airports have ended up being owned by investors overseas. And with resonance to the way in which utility companies have find alternative ways to raise money to maintain profit levels when their prices are regulated, so have airports.
The shops mentioned earlier are precisely the way that additional revenue can be achieved. Critics of imposing price controls on the amount that can be charged by airports to airline operators assert that this is the reason that passengers feel that the number of shops has increased whilst, it is argued, amenities for passenger comfort have not. Naturally some airlines are relaxed as it allows cheaper fares to be charged. Undoubtedly budget airlines in particular are keen to shift operations to airports that give them the best deal.
Perhaps an aspect of control that should cause collective concern is the fact that government control through regulation airport development. Even if the owners of an airport wish to expand provision through the building of a new terminal or an additional runway, they must seek approval from the secretary of state. Perhaps the most extreme consequence of such regulation that we’ve seen recently has been in the government’s desire to build a third runway at Heathrow, arguably the most congested airport in the world, when other airports could easily expand to provide the extra capacity that is predicted in future years.
In the Midlands, where IDEA is based, the regional airport, Birmingham International, has a strategic plan to expand terminal space to cope with an increase in passengers. As some commentators suggest, Birmingham International Airport’s proximity to the interchange at Coleshill that will be created on the proposed high-speed rail link, HS2 currently under construction will make it attractive to passengers from the South East. A journey time of 38 minutes to this interchange, which will have the ability to move passengers into Birmingham International Airport in less than ten minutes, will mean that passengers from Central London can arrive at the check-in desk as speedily as would be possible to Heathrow; possibly even more quickly.
Analysis by IDEA clearly demonstrates that there is a positive correlation between increased air travel and regional growth, employment, earnings and productivity. In a paper written by Beverley Nielsen, it was shown that. “enhanced air connectivity” can lead to a potential reduction in manufacturing costs by up to 10% that, in turn will be likely to produce a one percent increase in employment in the local ‘catchment area’. Additionally, research carried out previously shows that for every one million additional passengers traveling through an airport, approximately one thousand more jobs will be created on site.
Birmingham and the other major regional airport at East Midlands, though characterised with different passenger profiles, through their complementarity ensure that regional growth can be sustained. However, as our analysis also indicates, strategic development by airport operators has a tendency to be seen as conservative and intended to address shareholder value at the risk of not being sufficiently dedicated to the exigencies of regional and national economic growth.
We conclude that there is a need to reconsider the way in which British airports are allowed to operate. Crucially, we suggest, data collected by IDEA provides clear evidence that all regions lose out to the South East in terms of investment per capita in transport. The current debate that swirls around Brexit suggests that now is an excellent time to consider the way in which airports should support regional growth to sustain and create high value jobs. Indeed, for example, a sector such as tourism in the region, and which demonstrates year-on-year growth, will hugely benefit from development of local airports.