Heathrow’s expansion means more investment. Increased airport capacity is essential for the UK’s prosperity and competitive advantage, especially as global air trade and travel continue to rise.
After decades of indecision, the UK government has approved an £18bn third runway for Heathrow Airport, set to begin construction in 2021. However, the runway’s construction is not guaranteed, because a public consultation process, followed by a parliamentary vote next year, is still required.
The history of the UK’s large infrastructure policies is a story of indecisiveness. The debate surrounding London’s airport expansion began in 1968, with no major runways having been built since. However, action seems likely as delaying become increasingly unaffordable.
Heathrow’s expansion will be funded entirely by its private sector shareholders. It is predicted to cost between £16bn and £18bn, to cater for 250,000 extra flights a year, and to boost the economy by at least £61bn over the next 60 years – according to the airport itself.
Like the environmental impact, the cost to the taxpayer for road and railway upgrades is unclear. A Heathrow spokesperson told fDi that the airport would invest £1bn on such infrastructure. However, the Airports Commission puts the cost at £5bn, while Transport for London predicts a staggering £15bn. Foreign investors may be invited to foot the bill.
Trade and FDI Boost
The neutral Let Britain Fly campaign, which supports both Heathrow and Gatwick airports, told fDi Magazine: “It’s [unquestionable] that increased aviation connectedness leads to more tourism, FDI and trade [of goods and services]. An average 20 times more trade is done where we have a direct air link.” Increasing national and international connectivity is a business boon.
The campaign contends that, if no runway is built by 2030, the UK will “sacrifice £63.6bn in new export growth”. Moreover, should London airports be unable to meet increased demand, as is becoming the case, the UK will lose out to its European competitors, such as Schipol in Amsterdam or Charles de Gaulle in Paris, which have capacity to spare.
Heathrow’s expansion will create 40 routes to long-haul destinations, thereby doubling cargo capacity and increasing trade with rapidly growing emerging economies. Heathrow already handles 29% of all the UK’s non-EU exports. Let Britain Fly contends that, if aviation connectedness between the UK and emerging markets equals that with developed economies, FDI flows would increase by roughly £1.7bn a year.
Additionally, increased connectivity with non-EU markets may prove essential if a ‘hard’ Brexit comes about. Building on Heathrow’s already massive brand power, an expansion would show the world that the UK is open for business and is remaining a global trade leader. This will encourage long-term investments within the UK.
Should Heathrow’s expansion go ahead, its private owners from the UK, Canada, China, Qatar, Singapore and Spain stand to gain the most. Indeed, the possibility of expansion is why many of them bought stakes in the first place, and this latest vote of confidence may result in others doing the same. To maintain capital-intensive investment, Heathrow will continue to defer several billion in corporation tax, said Heathrow’s spokesperson.
While many sectors will benefit from Heathrow’s growth, airlines, construction companies and retailers will be the main beneficiaries, according to Ian Forrest, an investment analyst at The Share Centre. However, the immediate winners are those involved in the consultation process. Heathrow says that the government’s backing has already confirmed 2,700 jobs by the end of 2017.
Constructions companies, such as Balfour Beatty, have been keen for expansion, which would mean jobs for tens of thousands of workers. Heathrow says it will issue contracts worth £460m in the coming years. Already, construction firms Arup, CH2M, MACE and Turner & Townsend have been promised contracts.
Heathrow’s CEO stated that “95% of the project’s overall procurement spend is going to the British supply chain.” As monetary stimulus is “showing diminishing returns, such infrastructure spending will pump up the UK economy”, says Mr Forrest.
Of course, increased airport capacity will benefit airlines, especially British Airways and those seeking to run more long-haul flights. However, during the 10-year building phase, Heathrow risks losing airlines should it raise its already extremely high landing fees to help pay for construction.
Last, more traffic to Heathrow means more shops, catering services, hotels and storage houses, says Mr Forrest. Nearby areas will also benefit from “enlarged demand for amenities and vibrant redevelopment”. However, for many locals, any business benefits are overshadowed by increased noise and air pollution, and, for some, the depreciation or loss of their homes.