The Economics of Airport Expansion
To contribute to the Airport’s Commission inquiry The World Wildlife Fund, Heathrow Association for the Control of Aircraft Noise, and The Royal Society for the Protection of Birds, commissioned a study by CE Delft on the economics of airport expansion. The aim of the study was to propose a general framework for assessing airport expansion and new airport development projects, based on best practices and academic research. Special attention is paid to the issue of connectivity.
The study sets out to answer two main research questions: What framework should be used to assess the economic impacts of airport investment projects? And, does airport expansion lead to increased capacity, more connectivity and more economic growth?
The report describes the practical applications of Cost-Benefit Analysis (CBA) for aviation appraisal. It critiques existing approaches for not including effects such as: impacts on property and land values; impacts on other markets, such as the costs and benefits to businesses in the supply chain (backward linkages); impacts on other transport modalities (effect on rail and road transport); strategic effects (locational advantages); and regional inequality. It also critiques the lack of what it calls ‘non-monetised impacts of transport project investment’, such as: biodiversity, landscape, water, townscape and heritage of historic resources. It suggests that omitting these will ‘result in an underestimation of the net impact’ of aviation.
The report authors argue that a CBA should , besides economic impacts, also include external effects, such as social and environmental impacts, that are not internalised in market prices. This would produce a Social Cost Benefit Analysis (SCBA) which, the authors believe, would be a more appropriate way to evaluate airport investment plans. The authors suggest that SCBA offers a more holistic, objective assessment of the pros and cons of airport development.
The report then goes on to consider the relationship between capacity, connectivity and economic growth. It discusses the issues of connectivity, specifically in relation to Heathrow airport, compared to the aviation networks of the main European hub airports (i.e. Paris, Frankfurt, Amsterdam). It finds that Heathrow has fewer destinations than other hubs, but offers a high frequency of flights to the destinations it serves, specialising on the most profitable routes. The authors conclude by stating that the relationship between connectivity and economic benefit has not been studied in much detail in the academic literature. They suggest that the available empirical evidence shows a weak correlation, mostly for less developed economies, but there is no evidence of causation. The authors argue that the methodological shortcomings of the studies that aim to prove a causative relationship ‘undermine their ability to differentiate between correlation and causation’.