Spillover effects of the development constraints in London Heathrow Airport

Highlights

• Heathrow’s development constraints are felt within its multiple airport region and elsewhere in the country.

• An innovative methodology, derived from Finance analysis, is used to identify the strength of these effects.

• There is a significant spillover between Heathrow and Gatwick for intercontinental traffic.

• Significant spillover effects are also felt at Manchester and Birmingham.

• Spillovers are not as important for European traffic.

Abstract

In this article we assess the growth impact of London Heathrow’s development constraints on other airports in the UK. To test the relationship we use a two-stage methodology yielding an estimate of a congestion spillover effect. Our data are passenger traffic from 1990 to 2012 containing both intercontinental and European air traffic. For intercontinental air traffic, our results show high congestion spillover effect between Heathrow and Gatwick airports, and significant but lesser effect to Stansted airport. We also find significant congestion spillover effects from Heathrow to the spatially more distant Manchester and Birmingham airports, showing the extensive spatial impact of Heathrow’s development constraints. For European air traffic, controlling for low-cost air carrier growth, only two airports show significant congestion spillover effects: Gatwick and London City Airports. Illustrating that low-cost carriers do not operate from Heathrow, so its limitations cannot affect the predominant low-cost air traffic in other airports. The novel methodology we present in this paper can be applied to congestion research in general to assess regional and modal spills within networks.

Introduction

Development constraints of hub airports have grown dramatically in the last few decades, becoming a major public policy issue. In Europe, airports’ inability to expand capacity due to regulatory restrictions, land planning constraints and environmental concerns (Upham et al., 2003) plagues airlines by reducing availability of landing and take-off slots. One solution is to increase capacity in the most congested airports. However, progressively policy making involves the examination of alternative solutions such as demand management through pricing mechanisms (Nombela et al., 2004), and make better use of less congested secondary airports (Caves, 1997, DfT, 2003).¹ Alternative solutions involving curtailed growth of congested hub airports raise important questions on system scalability and flow of spillover demand within multiple airport regions (MARs) and further apart within the general air transport system.

Scalability is the ability of a system, a system of airports in our case, to handle growth by, (i) adding physical capacity, (ii) enhance efficiency, or (iii) shift supply between nodes (Bonnefoy and Hansman, 2007). Physical capacity can be added through new runways and airports (Bonnefoy et al., 2010). Efficiency can be increased through: innovative capacity enhancing operational procedures (Tether and Metcalfe, 2003), higher load factors, and larger average aircraft sizes (Givoni and Rietveld, 2009, Givoni and Rietveld, 2010, Pels et al., 2003). Most important in the context of this present paper is how the supply of flights and passenger demand shift from a congested hub airport to secondary airports² or airports of next largest cities with spare capacity and demand (Derudder et al., 2010, O’Connor, 2003).

Heathrow airport has substantial development constraints, frequently under review by policy makers with input from various stake-holders. To put the problem in perspective, in the summer of 2013, London Heathrow Airport allocated 10,260 air transport movements per week on average to various airlines while the capacity was 9569 movements (ACL, 2013). In other words, the airport is limited by its runway capacity of 90 movements per hour rather than other capacity restraints such as air traffic control limitations (Gelhausen et al., 2013). Increasing the size of the airport by adding a runway is one remedy (Janic, 2004), but subject to residential dislocation (HRW, 2013)³ and environmental concerns (Yim et al., 2013). Another option frequently aired is to build a new airport East of London (Oxera, 2013) and to add runways at secondary airports (Griggs et al., 1998, MAG, 2013, Mawson, 2000).⁴ These long-term solutions, if implemented, do not address the immediate demand problem at Heathrow, thus, calling for better understanding of Heathrow’s congestion spillover effects to secondary airports in the background of both potential supply-side, and demand-side solutions.

A spillover effect is a secondary effect that follows from a primary effect in a system, and may be removed in time or space from the primary effect (Bondi, 2000). Heathrow’s capacity constraint is a primary effect having secondary effect on growth at other airports. Spillover effects from congestion in airports have received limited attention in academia. Brueckner et al. (2010), in their research, focus on measures of substitutability as evidence of competition spillovers across airports. Competition spillover effects arise when route competition affects fares at different airports, suggesting, if the effect is strong, that affected routes are at least partial substitutes and therefore part of the same airport grouping. Whereas understanding competition spillovers helps the policy-maker analyze post-merger (or alliance) implications on airport groups (competition spillover ties), our research on congestion spillovers helps the policy-maker analyze how airport development constraints affect airport groups (congestion spillover ties).

Indirect treatment of the subject has occurred in research focusing on airport choice (Gelhausen, 2009, Gelhausen, 2011), the scalability of networks (Bonnefoy and Hansman, 2007) and hub formation in the presence of spatial constraints (Barrat et al., 2005). Although, we have gained important insights from these studies, little work has paid attention to the size of airport congestion spillover effects using aggregate data. A contributing factor to this scarcity in the literature is lack of a suitable methodology permitting such analysis. Our research, using a novel approach, focuses on isolating and quantifying these effects.

Our contribution is to show, i.e. (i) that congestion spillover effects exist across different spatial levels in the UK demonstrating the wider scaling effects of airport development constraints; (ii) that spillover growth (segregated from other growth) can be estimated using a novel approach (Bekaert et al., 2005, Christiansen, 2007, Koulakiotis et al., 2009); (iii) that the magnitude of the congestion spillover effect can be quantified for any relevant airport; and (iv) that the novel methodology can be used to perform trend analysis of the congestion spillover effects.

The remainder of the paper is composed as follows. Section 2 covers the research background where we discuss airport leakage, scalability and spillovers. Section 3 covers methods and analysis, in which we introduce current demand at relevant airports, their spare capacity, and a model to estimate airport congestion spillover effects. Section 4 describes the data. Section 5 presents the results. Finally, Section 6 concludes the paper.