This link has been bookmarked by 1 people . It was first bookmarked on 31 Mar 2008, by Zhuu Ming Ang.
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31 Mar 08
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That aviation is important to the economy is not in question. But the case for expansion is not quite as strong as OEF's conclusions suggest. Central to the firm's estimation of air travel's contribution to the economy is the value of a business journey compared with a leisure one: £400 for business, £120 for leisure. However, OEF acknowledges that business travel is only about a third of the total from Heathrow. If some leisure travellers were to fly from other airports, capacity would be freed for additional, more valuable business flights. On the assumption that business travellers are less sensitive to price than holiday-makers, one way to bring this about would be to increase the price differential between Heathrow and other London airports.
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Perhaps the chief defect of OEF's report is that although it puts a price on climate-change emissions, it makes no attempt to do the same for local air pollution or noise, the negative externalities that affect people most directly. Yet whereas greenhouse-gas emissions will be much the same whether or not Heathrow expands (because most of the traffic would go elsewhere), the effects of local air pollution and noise vary greatly depending on where extra capacity is built.
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A good start would be to recognise that, even at the prices just set by the CAA, Heathrow will still be far too cheap. The CAA is obliged by law to act in the interests of passengers and airlines by restraining BAA from extracting monopoly rents. It must also give BAA an incentive to run its airports efficiently and invest in improved facilities. Striking that balance has proved difficult. Shabby facilities are evidence of under-investment, while, as the CAA privately admits, BAA has been encouraged by charges linked to passenger numbers and the “single till” policy, which allows its profits from retailing to subsidise airside operations, to stuff as many passengers into its airports as it can. The CAA has no duty to promote competition.
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That raises the question of whether BAA should be allowed the full benefit of higher prices at Heathrow. A case could be made for the CAA eventually getting out of price regulation if BAA no longer owned Gatwick, the only existing British airport with the potential (given a second runway), to compete with Heathrow. Gatwick is reasonably near London, has good transport links and its main flight path is over the Channel and farmland. It is already the world's seventh-busiest international airport and the busiest with one runway. With another, it could support more traffic than Heathrow does now.
A new owner of Gatwick would have a strong incentive to run it as an alternative hub to Heathrow—something that seemingly has not appealed to BAA. Mr Griffins thinks an expanded Gatwick might well be able to lure a big airline alliance with lower prices and the promise of its own terminal away from the long shadow BA casts at Heathrow. Such is the importance of the economy of London and the south-east—it contributes 40% of GDP—that it could well support a second hub airport.
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That a bigger Heathrow and a continuation of the flawed regulatory system serve the interests of both BA and BAA is obvious. But it is far less clear why the government still behaves as if it thinks two private-sector companies should be the chief influences on such an important area of public policy. In a saner aviation market, airports would be free to compete against each other and eventually to set their own prices. Over to Mr Brown.
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