EMPLOYMENT GENERATION IN CONTEXT OF SE AIRPORT

CAPACITY EXPANSION TO 2030

A Surrey Perspective

Martin Shenfield

BERKELEY HANOVER CONSULTING LIMITED (BHC)

SEPTEMBER 2013

1. INTRODUCTION

• The Airports Commission

• Future SE Capacity Scenarios

• Future Scenarios at LHR and LGW

• Review Past Employment Trends

• Forecast Employment Generation to 2020/30

• Employment Implications to the Economy of Surrey

“If the UK hub was to be either Stansted or a new Thames airport, we believe that Heathrow would have to close as a major airport. This would have massive implications for local jobs and businesses depending on it. There would clearly be huge new economic opportunities near the new airport, and Heathrow itself would be attractive for business and residential development. But we believe the Airports Commission needs to consider very seriously the implications of the closure.”

“. . much of the economy of west London has developed around the airport, while many global high tech companies have chosen to locate in the wider Thames Valley Region. We believe that decisions on the location of our major hub airport imply a stark choice. Either it continues at Heathrow, or it finds an alternative new home elsewhere – in our view, Stansted and the Thames Estuary look like the prime candidates. In the event of a decision to develop a major hub airport at either of those two locations, we do not see how the current Heathrow could continue to operate.”

Independent Transport Commission May 2013

Are We Serious When We State that LHR Could Close?

• “The complete closure of Heathrow has been assumed though in practice a small airport could remain”. The Mayor of London’s submissions to the Airport Commission for (i) Outer Thames Estuary (ii) Isle of Grain and (iii) Stansted

• New Hub “will only be viable if Heathrow closes as a commercial airport; and the closure of Heathrow would, in our view, be unacceptable.” HoC Select Committee

 

• “No city has succeeded in starting up a second hub with the first in operation. This requires closure, with compensation ” London Britannia submission, Testrad

 

• “The UK can only support one hub airport and the development of the Thames Hub airport would require the closure of Heathrow” Thames Hub Airport, Foster+Partners

 

• “However, a prerequisite for taking forward any proposals for a new hub would be the closure of Heathrow. A four-runway hub Stansted would, however, require the closure of Heathrow to be viable” Capacity for Growth, MAG

2. APPROACH

• Desk Research• Review Statements by DfT, HAL, GIP, GLA, BA,

CBI, London First et al• BAA/HAL and GIP Employment Surveys• Review Other Studies• Field Work• Analysis

3. BHC VIEWS ON RUNWAY SCENARIOS IN THE SE

The Core Scenarios

• De minimis

• Maximize Existing Infrastructure

• New Runway(s) at Existing Airports

• New Airport Development (NAD) in SE

The Possible LHR Scenarios (and International Hub Retention)

1. LHR2 with maximize best use of existing infrastructure (mixed mode) (YES); 2. LHR3 and no new runways elsewhere (YES); 3. LHR4 and no new runways elsewhere (YES); 4A. LHR2 with additional runway at LGW (YES);

4B. LHR2 with additional runway at STN (YES – MAYBE WEAKENED);

5. LHR2 with NAD (UNLIKELY); 6. LHR1 with NAD (NO);

7. LHR0 with NAD (NO).

Is BA Important to the Mix?

• BA consolidating at LHR T5• 2001 – 36% of ATMs at LHR• Slot Trading• Summer 2012 – 44% of ATMs at LHR• BA’s t/o of bmi• Summer 2013 – 51% of ATMs at LHR• Statements by BA• If LHR expands further consolidation by BA

Conclusions on Scenarios

• Scenario 1 (status quo - acts as a base case scenario)

• Scenario 2 (LHR3 Expansion)• 4A (LHR2 and LGW Expansion)• 7 (NAD)

• Can it work if BA moves?• Would it result in the short to mid term

degradation of LHR as hub airport?• Would it result in eventual closure of LHR?

4. NATURE OF EMPLOYMENT IMPACTS

How LHR Influences the Surrey Economy

LHR

Direct on airport

Indirect Employment

Induced Employment

Investment-generated

employment

Direct off-airport

Hotels Cargo/Freight

Airline services Car parking

Couriers

Employment derived from the

goods and services

procured by the firms carrying direct on- and

off- site activities

Employment created by

locally spent income

generated from the direct and

indirect activities

Employment generated by companies

relocating to LHR hinterland because

of international connectivity in

sectors such as IT &

pharmaceuticals

Airlines HAL Cargo/Freight Retailing Catering Car parking Hotels Security etc

Catalytic/Inward Investment

The LHR Numbers (’000) – 2010/2012

Employment Local London Rest of UK

Direct On airport 76.6 76.6 76.6

Direct Off Airport 7.7 7.7 7.7

Indirect 11.1 20.8 44.4

Induced 18.6 31.5 77.2

TOTAL 114.0 136.6 205.9

5. ON AND OFF AIRPORT JOBS AND OPERATIONS AT LHR

AND LGW FOR SURREY RESIDENTS

Note: This does not include catalytic impacts

The Numbers – LHR & LGWOn Airport Jobs (’000)

LAs LHR LGW TOTALSpelthorne 3.9 * 3.9Runnymede 1.5 * 1.5Surrey H 1.3 * 1.3Elmbridge 0.8 * 0.8Woking 0.6 0.1 0.7Guildford 0.5 0.1 0.6Reigate & Banstead 0.4 2.5 2.9Epsom & Ewell 0.3 0.1 0.4Mole Valley 0.2 0.1 0.3Tandridge 0.2 0.3 0.5Waverley 0.2 * 0.2TOTAL 9.8 3.1 12.9

The Numbers – LHR & LGWOn and Off Airport Jobs (’000)

LAs In EmploymentTotal

LHR/LGW Jobs

% Dependency

Spelthorne 46.4 5.9 12.8Reigate & Banstead 66.4 4.4 6.6Runnymede 44.5 2.1 4.8Surrey Heath 43.3 1.8 4.1Woking 48.4 1.0 2.1Tandridge 40.8 0.7 1.7Elmbridge 64.9 1.1 1.7Epsom & Ewell 34 0.5 1.5Guildford 72.3 0.8 1.1Mole Valley 38.1 0.4 1.0Waverley 55.7 0.3 0.5TOTAL 554.8 19.0 3.4

6. CATALYTIC IMPACTS – WHAT ARE THEY AND HOW

DO THEY OCCUR?

How Can We Understand These Factors?

• The Heathrow Effect

• Previous LHR Research

• Is There a LGW Effect?

• Previous Catalytic Research– “it should be emphasised that the economic catalytic contribution

of air transport to GDP is bigger than its combined direct, indirect and induced impact” - The Economic Catalytic Effects of Air Transport in Europe, OEF 2002

• FDI

• Inward Investment

• Expansion and Retention of Existing Base

• Other Hub Airports

What Type of Companies Are We Talking About?

Air Products Plc AIRCOM UK Ltd Alfa Laval Ltd Allianz Holdings Plc BAE Systems Balfour Beatty Engineering Bam Nuttall Ltd Berkeley Group Plc BP International Limited Bristow Aviation Holdings British Gas Trading Ltd Broadway Malyan Centrica Storage Limited Colgate-Palmolive (UK) Ltd Compass Group Plc Crest Nicholson Ltd Dairy Crest Group Ltd Dalkia Plc Del Monte Foods

Ericsson Ltd Esso Mobil Company Ltd Friends Life GlaxoSmithKline Consumer Healthcare IBM UK Ltd Kellogg Brown & Root Kerry Foods Ltd Kimberly-Clark Europe McLaren Group Ltd Menzies LLP Michael Page International Mobil Trading Mondi Mouchel Group Plc Novartis UK Ltd Pfizer Ltd Philips Electronics UK Ltd Procter & Gamble UK

PUMA United Kingdom Qinetiq SABMiller Samsung Electronics Santander Consumer (UK) Sony UK Limited Spectris Syngenta Toshiba Information Systems (UK) Limited Towers Watson Ltd Unilever UK Ltd Verbatim W.S Atkins International Wates Group Ltd Western Digital (UK) Ltd Yahama

Note – All based in Surrey

How Many Surrey Based Companies Actually Fall Within This Group?

• A list of at least 250 firms based in Surrey that exhibit some distinct aspects of catalytic impacts

• Employ between 50 and 7,000 staff in Surrey (obviously not all residents)

• Considerable journey-to-work of Surrey residents to international companies down M3 to northern Hants and along M4 Thames Valley

• Without major surveys impossible to accurately gauge the extent of catalytic impact

• …and how would the different airport scenarios impact these companies?

OK So Give Us An Idea of the Scale of Impact on These Companies!

Scenarios Existing Companies: Retention

Existing Companies: Expansion

Inward Investment

S1

S2

S4A

S7

Very Positive Positive Neutral Negative Very Negative

S2 and S7 Impacts • S2

• LHR with 3 runways will maintain global position as lead international hub airport and enhance the regional competiveness advantage for inward investment as well as facilitate expansion of existing international companies

• Encourage the expansion key high value added sectoral clusters in IT, pharmaceuticals, communications, knowledge-based business services etc

• An unambiguous sign to global players that the British Government supports expansion in the region around LHR

• S7• An unambiguous sign to global players that the British Government is

attempting to direct investment from west of London to east of London• Existing UK and international companies in Surrey will consider relocation to

locations near to new airport in addition to sites near other hub airports such as Schiphol, Frankfurt, Paris and Dubai – this will not only result in a local loss of jobs but would negatively impact on UK plc

• Those companies who stay may consider expansion elsewhere and/or diminish local operations

• Above-mentioned local clusters particularly affected and would result in knock-on impacts to local/regional specialised supply chains

OK so S2 and S7 are Obvious but Explain S1 and S4A!

• S1• LHR will be full by 2020/2025 leading to the airport crowding and the

region losing competitive advantage against other European regions that provide international hub facilities

• Existing companies maybe deterred from expanding locally and potential FDI may locate elsewhere

• S4A• The expansion of LGW will be of benefit to some companies located in

East Surrey particularly Reigate & Banstead• Over 6% of locally economic active in R&B are currently

directly/indirectly dependent on LGW• There could be some movement of point-to-point airline traffic from

LHR to LGW relieving pressure on LHR • There is a possibility that one of the alliances would move from LHR to

LGW

7. FORECASTS

Employment Impact in Surrey (000 jobs)

8. SUMMING UP• LHR is a major overall generator of employment on and off airport for Surrey

Residents –accounting for in excess of 12% of the local workforce in Spelthorne and some 3% in Surrey overall

• Clearly the local workforce based in Spelthorne is highly dependent on LHR with a likely scale dependency in excess of 30% with the catalytic impacts

• Runnymede and Surrey Heath are the other local authorities that have high LHR dependencies with catalytic impacts (above 10%)

• LGW is a significant generator of employment in Reigate & Banstead• Overall, LHR/LGW provide 3.4% of jobs to Surrey residents but this

increases to some 12/15% once the catalytic impacts are taken into account• The closure of LHR (S7) would be a major economic blow for Surrey. Indeed,

even the status quo LHR (S1) would result in a long-term loss of in excess of 15,000 jobs – equivalent to over 3% increase in unemployment rates. In particular, the impact on Spelthorne, Runnymede and Surrey Heath would be highly challenging

• Increasing runways at either LHR (S2) or LGW (S4A) would facilitate significant additional economic activity leading to an increased demand for labour in Surrey and its environs