I would agree that the forecast vis-a-vis the future oil price seems wide of the mark and any price stabilised above +/- $50/barrel will almost certainly depress economic growth not just in the UK but throughout the 'developed' world, and will impact more than just the aviation/airline industry.
However, the argument that the UK Government is wasting and is likely to waste billions of pounds of public funds on unnecessary airport expansion is just not correct because the proposed expansion at Edinburgh, Birmingham, Heathrow, Stansted, Luton, Gatwick, etc., would all be funded by the private sector simply because these airports are all privately owned. Thus, if the business case stacks up, funding will be negotiated on a commercial basis ~ and if for any reason it doesn't, then the airport companies concerned won't spend the money (it's doubtful that they'd even be able to raise the necessary capital or achieve the required return on investment anyway).
The various rail improvements (e.g. London's "Crossrail") are not directly linked to airport expansion and in any case, irrespective of whether these are funded via a Public/Private Partnership (PPP) any improvement/development of the UK's rail infrastructure has got to be good both for UK plc and on environmental grounds.
I agree that for internal i.e. domestic air travel over sectors of up to about 250 miles, a reliable and high-speed rail alternative would be entirely viable but this is unlikely to be achieved without significantly increasing public investment (otherwise, the cost of long-distance rail travel simply increases to a point where the law of diminishing returns kicks in) and if oil stays well above $50 the impact on HMG's tax revenues will rule this option out notwithstanding G Brown's ongoing impersonation of Mr Micawber...
Long-distance rail travel cannot however, compete with air travel to the Continent beyond 200 to 250 miles i.e. Paris/Brussels and maybe Amsterdam/Rotterdam simply because of capacity constraints through the Channel Tunnel and so there will remain a demand for flying to/from Continental Europe (and of course, to/from Eire, CIs, IoM, etc) together with long-haul, and with a population across Europe and N Amercia that will become increasingly older and indeed, retired, leisure activities (to which flying is very much associated) will remain a boom industry even if the growth figures used by HMG prove somehwat optimistic.
