The case for R3:
* Will increase Heathrow capacity by approximately 140000 movements annually.
* Will enable Heathrow to maintain and strengthen hub role.
* Will encourage the addition of thin long-haul routes to developing markets.
* Will create 14000 jobs at Heathrow and more in the wider economy.
* Will increase connectivity to UK regions via new scheduled services supported by PSO arrangements.
* Will represent a boost to the economy of a reported £74Bn spread over 60 years.
* Will provide employment within the UK construction industry for the duration of the build.
* Some construction related contracts will be awarded across regional UK.
* It is suggested that increased competition will drive down fares to the benefit of consumers.
* The project will send a clear message that Brexit Britain is a truly global nation, open for business.
The case against R3:
FINANCIAL ISSUES
* Cost. Direct cost of construction put at £15Bn to £18.5Bn before overruns.
* These direct costs to be borne by HAL, but likely to be 100% underwritten by the taxpayer.
* R3 will give rise to a support access liability of £10Bn to £20Bn according to TfL. Predominantly taxpayer funded.
* HAL gearing is currently around 87% and is set to rise to 91%. Figures of this magnitude are generally considered dangerously high by the financial markets, increaing the risk of default down the line. 81% gearing at Thames Water caused consternation within government at the time. If HAL were to default, the taxpayer would be on the hook for an all-in R3 related liability in the region of £30Bn.
* The highly contentious EU 'divorce bill' is set at £39Bn. The combined cost of making just one additional part-time runway work at Heathrow closely approaches this sum. A bit of perspective there.
* Major cities around the world are delivering new multi-runway airports at a fraction the cost of expanding Heathrow by just a third. Examples include Istanbul, La Guardia. Here in Australia, Western Sydney Airport (Badgerys Creek) is budgeted at AUD $5.3Bn directly plus $1.7Bn in access support works. That delivers a working twin-runway airport for high-cost Sydney at a shade under £4Bn. Heathrow R3 comes in at 6x to 8x this sum - and adds less than half the movements Badgerys Creek could deliver. The Heathrow proposal appears monstrously overpriced by any measure.
* It has emerged that ministers have agreed a 'poison pill' deal for the Heathrow NW runway proposal which would reimburse HAL losses under circumstances which see the project compromised. It is alleged in the media that counter-proposals by Gatwick and Heathrow Hub were not offered a similar deal. Cynics suggest that this arrangement highlights a predetermined preferred outcome by government.
* The support works bill of upto £20Bn will fall directly to taxpayers and will be drawn against tax funding for national infrastructure investment. Interested parties argue that English regions already deprived of state infrastructure investment for two generations will be locked out for at least another decade if projects in London are allowed to monopolise national funding yet again. Crossrail2 proposals, as well as Heathrow R3, fuel this concern. Feelings on this subject are running very high, particularly across the English regions which argue that London is stealing their lunch, dinner and tea. Research published by respected academic institutions suggest that their complaints have merit.
* The Financial Times has published an article questioning whether HAL will actually be able to raise finance on the scale required. Passenger charges at Heathrow already exceed those at competing European hubs by 40%. They cannot raise charges further and remain competitive, and in any case, charges are regulated by the CAA who pledge to keep charges broadly in line with today. Meanwhile, company debt already stands at a staggering £13.4Bn as of 2017, and shareholder funds have fallen from £5.5Bn in 2006 to £703M more recently. HAL's £847M dividend in 2017 is set against after tax profits of just £516M. So, before R3 construction, diividends are already part-financed by debt expansion. The likelihood of a massive dividend cut lasting several years, from a company with very high gearing, operating in a heavily price-regulated environment conspire to make this particular "compelling investment" a very hard sell. Will it be another case of taxpayer funds to the rescue? Credit to the FT for the article advising these figures.
* Alleged benefits to regional UK depend upon discredited 'trickledown' theory. Aside from the modest short-term contracts related to the construction phase. Beyond this, the regions stand to lose jobs in favour of London once R3 becomes operational. These were dubbed "displaced jobs" in the Transport Committee debate.
* Construction of R3 will make necessary the removal / relocation of the Lakeside 'Energy from Waste' recycling plant at an estimated cost of £1Bn. Compensation due to neighbouring residents and businesses will be substantial also.
* Is there genuinely any possibility that R3 will fully pay back the cost of making it a reality? If not, surely alternatives make more sense. Does R3 make financial sense by any measure?
* It is claimed that an expanded Heathrow will deliver lower fares for consumers due to increased competition. But the high costs implied make this highly unlikely in reality. Though new capacity at Gatwick and / or Stansted could meet this goal?
* With R3, Heathrow will be capped at 480000 movements per annum. Even if government agreed to lift this cap (unlikely) only a further increase of around 5% would be deliverable.
OPERATIONAL ISSUES
* 140000 additional movements per annum isn't a great return for this level of investment.
* 15% of those slots are set to be ringfenced for use by (taxpayer-supported) marginal domestic flights. A PSO mechanism is likely to be implemented to make this work.
* EasyJet proposes to bid for a significant share of these new slots. A fine company, undoubtedly. But their business is P2P no-frills short-haul. Routes such as Lanzarote and Marrakech were mentioned at the recent RABA HubLAB conference. Airports including Eindhoven and Bergerac were pitching their credentials. Fine destinations, all. But not aligned with the aspirations upon which R3 is being sold to public and politicians alike. Isn't Heathrow supposed to unlock niche routes to upcoming far-flung growth cities in India, China, Brazil etc? No point in even mentioning Russia given the prevailing diplomatic climate.
* At the same conference, FlyBe advise that they would consider additional services from Heathrow subject to securing business-friendly (peak) slots, the "right" costs and charges, plus zero-rated domestic APD!
* The demand for additional slot capacity in the London Airports system has been coming overwhelmingly from no-frills short-haul operators such as Ryanair, EasyJet, Jet2 and Norwegian. Not quite as sexy as new schedules to Chengdu and Bengaluru, but short-haul leisure is fhe real source of volume growth. And the needs of this market would be well-served by expansion at Gatwick and Stansted.
* A new runway at each of Gatwick and Stansted could be delivered for less than the cost of R3 alone. With far less risk to the public purse. And that would deliver upto 300000 new slots for the SE, versus 140000 for R3. Compelling?
* Meanwhile, long-haul itself is increasingly moving away from the hubbing model to P2P. Is Heathrow the solution to yesterday's problem? Operators including Norwegian, Primera Air and Thomas Cook are establishing networks of low-fare long-haul networks from smaller airports. Gatwick itself is already offering around 50 long-haul routes. Manchester is right up there too. Glasgow, Edinburgh, Birmingham, Newcastle - all offering their own long-hauls. Stansted moving into this market too with Primera and Emirates just added. The claim that Heathrow is Britain's only hope is shown up as nonsense with every passing day.
* At a recent meeting of the Transport Committee, it was stated that Heathrow R3 would result in a substantial loss of direct flights from regional airports. The number quoted was a loss of 74000 fewer flights per annum by 2030 rising to 161000 by 2050. That number actually exceeds the 140000 additional flights which R3 accommodates in the first place. Switched away from disadvantaged regions to overheated Heathrow at astronomical cost? How can any rational analyst sign up to this?
* Routes at risk typically include Emirates scheduled NCL-DXB and Hainan Airlines MAN-PEK (they've just added EDI too). Academic studies have demonstrated that services such as these bring outsized economic benefits to the regions they serve. The loss of routes such as this in favour of a Shuttle to Heathrow would be catastrophic to regional UK's competitiveness. Do we actually propose to 'invest' £30Bn to strip 161000 flights annually from regional UK in favour of 140000 extra at Heathrow instead? Parallel universe exonomics?
* IAG, Heathrow's largest airline operator by far (incorporating British Airways) opposes the R3 proposal unequivocally.
* Heathrow R3 will reportedly bring 323000 people into the Heathrow 51 Decibel footprint for the first time, taking the overall total to 1.15 million people. Concerns are also raised that Heathrow will breach air quality rules with R3. Government forecasts also indicate a 33% increase in road vehicle traffic around Heathrow, in contrast to HAL's suggestion that there will be no increase at all. A 'senior Labour figure' informed Robert Peston that R3 proposals are set to fail Labour's 'four tests'.
* If long-haul business flights are indeed the prime objective for Heathrow, could they be accommodated by other means? Let us consider the hypothetical addition of 20 new daily long-haul flights. Each one represents approximately 90 seconds of runway occupancy, and needs access for arrival and departure. So three minutes per visiting aircraft x20 means one hour of runway occupancy total. And that means 30 minutes on each of the current departure and arrival runways. Whilst undoubtedly controversial, would extending Heathrow's operating hours by 30 minutes be less damaging than imposing a third runway on the area? Worth thinking about. One could even add a runway at Gatwick too!
* Other long-haul solutions include upgrading existing schedules to larger aircraft types, consolidating high-frequency routes such as Heathrow to New York services onto fewer but larger aircraft. And of course, the long-established practice of slot trading. If a long-haul route is sufficiently compelling it will displace a short-haul to Gatwick, Stansted or City. And in the case of Heathrow's primary hub carrier - BA - reshuffling SH slots to LH is absolutely straightforward anyway. They control a huge bank of slots.
* With respect to Heathrow's hub role, one cannot just presume the attractiveness of the product. Transfers within T5 need one hour connection time to work reliably. Inter-terminal transfers are much worse ... quite notorious, actually. There is no guarantee that regional travelers will flock back to Heathrow in preference to now familiar single terminal transfers at competing hubs such as Amsterdam and Dubai. These are lower cost airports too.
* The notion that business travelers will stay at home if no non-stop flight is available doesn't stand up to scrutiny. Even London-based executives are capable of changing planes in Dubai or Chicago occasionally!
* The R3 charm offensive purports that the UK's air cargo capability will be substantially compromised if R3 does not go ahead. But again, this also fails to stand up to scrutiny. Heathrow is the UK's number one cargo gateway by VALUE, not by weight or bulk. One can accommodate alot of gems, iPhones and gold ingots in the hold of a passenger flight. Is there actually a cargo capacity crunch at Heathrow in reality? Well, if so, Stansted has evolved into a very capable cargo centre of excellence for fhe SE. East Midlands and Doncaster Sheffield have carved a similar niche in the centre of the country. And Scotland has Prestwick. Plus, of course, underfloor cargo capacity is also available in abundance on many of our regional passenger flights. Is there really an issue here?
And finally, I would just like to mention one piece of propaganda which really peeves those of us working in aviation dunnunda. Apparently, according to Heathrow
PR, stats should only really consider pax who cross an international boundary in determining an airport's status in the global hierarchy. Sydney to Perth ... unimportant! Melbourne to Darwin ... forget about it! Even New York to LA (for our US friends) ... nah, forget about it, mate! But Heathrow to Dublin? Heathrow to Brussels? They're proper flights! Now you're talking ...
On the balance of evidence, I must conclude that the Heathrow R3 proposal is such a supremely terrible idea that it is amazing that it is being taken seriously in a developed country. New runways at each of Gatwick and Stansted make so much more sense from every perspective.