Tuesday 25 June 2019 4:55 am

Heathrow expansion is taking off – now let’s inject some competition into aviation

It is an airport running at full capacity – and has been for years. Now at last, with the parliamentary approval of a new runway and the release of competing development plans, Heathrow expansion is back on the menu, boys.

One of the contenders to be the next Prime Minister, Jeremy Hunt, is a firm backer of Heathrow expansion. Boris Johnson, in contrast, literally skipped town to avoid voting one way or another when it went before parliament.

But now is the time for both Boris and Hunt to step forward and embrace the opportunities that expanding Heathrow offers the British people. Because Heathrow is an amazing chance not only to increase capacity, but to inject some competition into our aviation industry –  and it’s one the future Prime Minister should grab with both hands.

Beyond the massive infrastructure project required to build the runway, decisions will need to be made regarding how the associated new terminal will be designed, built, and operated.

Heathrow Airport Limited (HAL) currently holds a dominant market position, and while it competes with other European hubs for through-traffic and with other London airports, its wide variety of routes and airlines make it the natural choice for millions of travellers. It notably uses its position to charge airlines among the highest rates of any airport in the world.

The UK aviation market lacks normal competition mechanisms, which means that HAL can rest on its laurels with little incentive to lower costs or increase efficiencies. But the new terminal is an ideal opportunity to change that.

Today’s Adam Smith Institute (ASI) report, Ready for Takeoff: Building competition in the aviation industry, outlines policy proposals which could lead to cheaper, more efficient construction and operation of Heathrow’s new terminal, providing better services to millions of travellers.

The ASI is calling for the government to carefully consider the potential for terminal competition: a separately built, owned and operated terminal at Heathrow, as is the case at JFK in New York City.

Terminal competition would prevent HAL from excessively building up its costs that it then passes onto airlines and passengers in higher fares. A separate terminal owner and operator for airlines to choose would put pressure to keep costs low and be responsive to consumers.

Further, the ASI is calling for a rethink of the historical, incumbent supporting system of landing and takeoff slot allocations at the airport. As it stands IAG, the owner of British Airways, has more than half the slots at Heathrow. This prevents airlines from building the scale necessary to challenge BA.

We are suggesting that the 356 new daily slot pairs associated with the expansion are auctioned off. This could increase passenger numbers by 16m and raise billions in revenue to help fund the project.

The Heathrow expansion is an ideal opportunity for our politicians to prove they are pro-competition and keen to keep Britain at the forefront of international travel.

It’s time for them to gather their belongings, form an orderly queue, and get on board.

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