Speech to ACI Europe Annual Assembly, 12 June 2003

Rod Eddington, Chief Executive, British Airways

Good afternoon ladies and gentleman.

I have been invited here today to talk about British Airways’ hub’s future. It’s an issue very close to my heart so you will hardly be surprised to learn that I intend to stress the benefits of London Heathrow airport to British Airways, the aviation industry and the British economy. I will also outline why I believe the government should build on Heathrow’s success and provide a third short runway there.

Britain is an outward looking trading nation and the importance of aviation has long been recognised. As a result, it has developed one of the world’s best and most extensive network of international air services. This is an irreplaceable national asset which is valued by millions of people and thousands of businesses across the country. It also contributed 12.6 billion pounds to the UK economy in 2002 and supports 180,000 jobs directly and 500,000 indirectly. Key to this success is the role of Heathrow, the UK’s only internationally competitive hub airport, and the range of longhaul, European and domestic routes which it serves.

What is a hub?

I want, firstly, to clarify the meaning of the word 'hub'.

It is often used to describe an airline’s operating base or simply to distinguish a large airport from a small one. That is incorrect. A true hub serves as an epicentre for connecting passengers and cargo. Airport operators cannot create a hub airport without attracting an airline whose strategy is to build an integrated and competitive route network with a broad mix of interconnecting longhaul and shorthaul routes. Small wonder, therefore, that 'no frills' and charter airlines, with their shorthaul point-to-point services, positively avoid basing their operations at an interconnecting network hub.

Well, that’s the definition of a hub but, in practice, how important is it to have an effective international hub?

The UK government’s consultation paper on future airport development acknowledges the important benefits of hubs and the range and frequency of services generated at them.

Hubs also help generate vital inward investment by making a region a more attractive business location and thus stimulating the economy.

The frustration we at British Airways face is that Britain clearly has the potential, at Heathrow, to sustain a truly global competitive hub. Other European airports with the ability to compete at the global level have built, or are planning to build, the runways they need. Frankfurt has three runways, with a fourth planned by 2006. Paris Charles de Gaulle has four runways and Amsterdam has five runways. In Britain we have not had a new runway at Heathrow since World War II! And we have yet to make a policy decision to add a single runway there to allow its full potential to be realised.

A competitive hub at Heathrow

Heathrow today caters for 80 per cent of longhaul travel at the London airports but for some considerable time now it has been suffering from unacceptable congestion, air traffic delays and a lack of capacity for new services. As a result, Britain’s international air transport network is eroding, while continental airports are building up their networks. In 2002, Paris Charles de Gaulle airport had 220 destinations while Heathrow had just 191. Amsterdam Schipol airport serves 16 destinations in the UK regions - double the number that are served from Heathrow.

Action is needed now to ensure that Britain has a competitive inter-continental hub, otherwise the success of the British aviation industry and London’s position as a world city, will decline.

British Airways’ development as a global network carrier has underpinned the success of the British aviation industry and the lack of capacity at Heathrow hits us hard.

We view enviously our main continental competitors at their hubs where they have large slot portfolios and the ability to expand their route network with ease. Our success as an international network airline in a highly competitive market depends on good access to airports and the ability to operate there punctually and efficiently and, dare I say it, at a reasonable cost. We need to be able to expand our route network when we want to if we are to capitalise on opportunities in the market. At the moment our hands are tied.

We believe that there is an overwhelming case for developing Heathrow. Adding a short runway there in 2011 would be sufficient to maintain the competitiveness of Britain’s aviation hub, at least until 2030. The new runway would be used for short haul flights, including restored UK regional services and would free up capacity on the main runways for longhaul growth.

Two hubs?

I’d like to move on to discuss a question which the government has posed in its runways’ consultation documents - and that is whether Britain could grow a second international hub airport alongside Heathrow. We doubt it.

No other city in the world has developed two competing inter-continental hubs - not even New York - and we believe it would be impossible in London in the coming 30 year period. A new hub could not compete with established hubs at Heathrow and on the continent, particularly if it was in an inconvenient location, or if operating costs were high.

The two-hub concept depends on constraining Heathrow’s development and forcing services to move away from Heathrow. Indeed, the government talks about moving nearly half of Heathrow’s longhaul services to Stansted - or nearly half of all Heathrow services to Cliffe - to make these airports viable as hubs.

British Airways has first hand experience of trying to split its operations between two hubs and it is indeed a costly business. Because of the congestion at Heathrow we were forced to increase our flying programme from Gatwick to remain competitive. However, splitting our hub cost us some £500 million each year and, while we are still committed to flying from Gatwick, we have now de-hubbed our operation there and moved many services back to Heathrow.

Restricting Heathrow’s development would not only impact on airlines and their suppliers but would disrupt the economic balance of London. It would hit those businesses in West London and the Thames Valley who are based there precisely because of Heathrow’s location. Enforced mobility holds no attraction to anyone.

Foreign inter-continental carriers, who may be denied access to Heathrow as a gateway to Europe, are likely to start or increase operations at the next most attractive airport in Europe and that is more likely to be at another established hub, such as Paris Charles de Gaulle, rather than a newly developed airport hub in Britain.

Consumers will also vote with their feet in competitive markets. Many passengers denied access to Heathrow will not use Stansted or Cliffe instead. Transfer passengers are more likely to use continental airports, some businesses would relocate to be closer to continental hubs and fewer tourists may decide to come to Britain to spend their money here.

While Government intervention can undermine Heathrow’s success, what it cannot do is ‘make a silk purse from a sow’s ear’ and turn an inconvenient or expensive airport into a viable hub.

Heathrow first

Now, turning to the economic benefits of the government’s runway options, the net economic benefits of any airport development packages which include a new short runway at Heathrow as a first priority dwarf non-Heathrow packages, even when an allowance is made for environmental costs.

Our research shows that a third short runway at Heathrow would generate £37 billion of economic benefits for the UK, net of environmental costs, over a 50 year period. No other single runway option would create such wealth.

A new short runway at Heathrow, and a second runway at Gatwick would generate £65 billion of benefits with just two new runways. Building three or four runways in one location, to create an alternative hub at either Stansted or Cliffe, would cost more, have greater financial risk and provide fewer economic benefits.

Sustainable development

As well as economic factors, it’s equally as important to discuss aviation’s environmental responsibilities.

Any airport development scheme must aim to capture as many of the economic benefits as possible, while dealing responsibly with environmental impacts.

The immediate priority is for aviation to take responsibility for carbon emissions, the main contributor to global warming. We believe that the most efficient and effective way forward is not a tax on kerosene but for aviation to be brought into an open international system of emissions trading.

There is no case for adopting a policy of demand management simply to avoid making difficult decisions about expanding national infrastructure. Policies to deal with environmental issues, such as emissions trading, will have an effect on demand, but these effects have been incorporated into the Government’s traffic forecasts. Fixing a limit on growth would be against the interests of the vast majority of people in this country.

Local environmental impacts have varying degrees of significance for all the runway options. These differ according to location and clearly they must be addressed.

Managing local impacts at Heathrow

At British Airways we have spent a great deal of time looking at the environmental issues surrounding the construction of a third runway. This has been done in conjunction with local stakeholders including BAA, local authorities and community representatives.

It is our firm view that Heathrow’s third runway can successfully meet the tough environmental challenges which the British government’s policy on sustainable development requires.

Our response to the government’s runway consultation, which we published last month, suggests an alternative location for a new runway at Heathrow which would save the historic centre of Harmondsworth, a village close to the airport. It also provides evidence that new air quality limits can be met and that noise impacts can be maintained within the level recommended by the inspector of the Terminal 5 public inquiry.

We also believe that fair compensation should be offered to those people whose properties are seriously and unavoidably affected.

A new Heathrow runway should be used only by relatively small, quiet aircraft - and not by large aircraft such as Boeing 747s or the new Airbus A380. There would be no need for any flights before 6am on the new runway or any increase in night flights on the other runways.

Public transport access to Heathrow is also key and we believe that a wider rail network is needed which would incorporate through-running train services.

Planning

Last but not least, I’d like to look beyond the Aviation White Paper and the government’s decision on where new runways should be built.

Once the government has made a decision, it must ensure that its credibility is not compromised by our planning process.

The government must make an unambiguous policy statement in the Aviation White Paper about which runways will be constructed - and the planning process should clearly operate within those parameters.

There should be reforms to speed up the planning process, including clearly defined deadlines for consultation, more efficient public inquiries to make them shorter in length, but still fair, and further progress with the review of compulsory purchase and compensation packages.

There should also be greater co-ordination of all the planning applications relating to a specific scheme. For example, there were 37 separate planning applications for Terminal Five.

We have shown in our submission to the government that, by doing this, we can reduce the whole planning process to eight years.

Summary

In summary, British Airway’s hub can have a strong sustainable future. This would bring continued benefits to the British economy, support worldwide destinations for both business and leisure passengers and provide the UK regions with direct access to a global network.

The arguments for building a third runway at Heathrow cannot be ignored if Britain is to build on the successful aviation industry it developed in the past and reap further benefits in the future.

If either Stansted or Cliffe is developed as an alternative hub, they would only succeed if Heathrow was completely closed down. That could lead to the diminishing of Britain’s longhaul airline business and our aviation industry would slide down the world league. Is that what the British government really wants to happen? Let’s hope not.