New UK hub airport is ‘not commercially viable’

By Charlotte Turner |

The House of Commons Transport Committee is conducting an inquiry into the UK’s aviation strategy. As part of this, it asked Oxera to develop a set of questions for the Committee to use to probe the evidence put forward by witnesses.

 

The questions for the aviation inquiry have been designed purely to help the Committee assess the commercial viability of a new hub airport in the UK by asking whether commercial owners of a new airport would be able to make adequate returns to obtain finance.

 

Based on this analysis, Oxera concludes that, under most scenarios, expected revenues would be less than the expected costs and that a new hub airport would not be commercially viable. The report highlights that for construction of a new hub airport to go ahead, substantial taxpayer support is likely to be needed.

 

COMPETITION FROM EUROPEAN AIRPORTS

Oxera “All the scenarios have a negative value at a rate of return that a private investor would require and the analysis implies that substantial public support/subsidy would be needed (in the range of £10-30 billion in today’s money for the base-case scenarios examined.”

 

Oxera points out that competition from European airports could also make it difficult for a new UK hub airport to succeed. “Although the Department for Transport expects continued growth, recent forecasts have seen downward revisions…Competition with European hub airports is also relevant… Currently, transfer/transit traffic at Heathrow accounts for 35% of total demand.

 

“However, any substantial changes in the capacity that is available at CDG, Schiphol and Fraport are all likely to exert a degree of competitive constraint on any hub airport.”

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