Appendix II

Economic Benefits
Methodology
HSR impact on international connectivity
BAA
June 2010
Research has identified a relationship between international
connectivity and productivity (i.e. growth in GDP)

It is important for the UK’s economic

performance that connectivity is
developed and maintained with the
world’s fast growing economies such as Study
Study Relationship
Relationship Found
Found
Brazil, Russia, India and China (BRIC). •• Aviation
Aviation Economic
Economic Benefits,
Benefits, •• AA 10%
10% rise
rise in
in air
air connectivity
connectivity
2007
2007 increases
increases GDP by
GDP by 0.07%
0.07%
Connectivity generates wider economic
•• Economic
Economic Contribution
Contribution of of the
the •• AA 10%
10% rise
rise in
in air
air connectivity
connectivity
benefits for businesses, such as access Aviation
Aviation Industry
Industry in
in the
the UK,
UK, increases
increases GDP
GDP by by 0.6%
0.6%
to an international labour force, as well 2006
2006
as customers, suppliers and knowledge- •• Airline
Airline Network
Network Benefits,
Benefits, •• AA 10%
10% rise
rise in
in air
air connectivity
connectivity
2006
2006 increases
increases GDP by
GDP by 1.2%
1.2%
sharing around the world.
•• The
The Economic
Economic Catalytic
Catalytic •• AA 10%
10% rise
rise in
in air
air connectivity
connectivity
These catalytic and ‘spillover’ effects Effects
Effects of
of Air
Air Transport
Transport inin increases
increases GDP
GDP by by 1.9%
1.9%
Europe,
Europe, 2005
2005
increase the efficiency and productivity
of UK businesses as well as attracting Source: Economic Impacts of Hub Airports (Colin Buchanan, 2009)
inward investment and high-profile
businesses to locate in the UK.
Previous academic studies find
elasticities of productivity to improved
international connectivity ranging from
0.007 to 0.019.
3
Heathrow is the UK’s only hub airport, supporting transfer
passengers and hence destinations that would not otherwise
be viable
In 2009 the proportion of air passengers
travelling direct between the UK and
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
BRIC countries that used Heathrow was
very large – 99.6% Brazil, 97.8% Russia, China
94.1% India, 100% China
Brazil
Heathrow is particularly vital in providing
air services to economically-important Russia
destinations, connecting the UK to 29 of
the top 30 world cities ranked by GDP. India
Excluding Heathrow, the UK has air
USA
services to just ten of those destinations
Heathrow offers a far higher frequency of Proportion of passengers on direct flights that use Heathrow, by destination
service to those economically-important country

destinations than any other European

airport, averaging 39 departures per
destination per week against the 20
offered by Frankfurt and Charles de
Gaulle, its closest competitors. Higher
frequencies offer businesses greater
flexibility and efficiency
4
A High Speed Rail Link to Heathrow Airport will increase
international connectivity by creating long haul capacity

Heathrow
Heathrow capacity
capacity HSR
HSR enables
enables more
more long
long haul
haul Increased
Increased international
international
constrained
constrained flights
flights connectivity
connectivity


Heathrow
Heathrow isis currently
currently

HSR
HSR creates
creates modemode shift
shift

Increased
Increased long
long haul
haul
operating
operating at 99%
at 99% of
of from air to rail
from air to rail capacity
capacity is satisfied
is satisfied by
by
permitted
permitted runway
runway capacity
capacity domestic
domestic demand
demand from
from the
the


Demand
Demand for for UK
UK domestic
domestic regions
regions currently
currently


Landing/take-off
Landing/take-off slots
slots have
have flights
flights is
is reduced
reduced connecting
connecting via
via European
European
aa high
high price
price

Number
Number of of UK
UK domestic
domestic hub airports
hub airports


Many
Many UK
UK domestic
domestic routes
routes flights also falls
flights also falls

Passengers
Passengers will will generally
generally
have
have been removed
been removed

Slots
Slots can
can be
be re-allocated
re-allocated prefer
prefer to to travel
travel to
to


Third
Third runway
runway unlikely
unlikely to
to from
from domestic
domestic flights
flights to
to Heathrow
Heathrow than than via
via
happen
happen inin the
the near
near future
future long-haul
long-haul flights
flights Amsterdam/Frankfurt/Paris
Amsterdam/Frankfurt/Paris
therefore
therefore air
air movement
movement ifif there
there is
is aa good
good link
link to
to the
the


Long-haul
Long-haul flights
flights can
can carry
carry
capacity
capacity remains
remains constant
constant airport
airport
more passengers
more passengers


Regions
Regions reliant
reliant on
on
international
international hubs
hubs

G E G E

M M

Existing Domestic Air Links Slots Transferred to Long Haul Destinations 5

 GVA growth has been estimated by applying an elasticity
of international connectivity to productivity

Scenarios: Old Oak Common; integrated on/near airport station; full switching from air to rail

Calculate
Calculate new
new Distribute
Distribute
Estimate
Estimate passengers
passengers Calculate
Calculate change
change in
in
number
number of
of additional
additional Calculate
Calculate change
change in
in
shifting
shifting to
to HSR
HSR from
from international
international
international
international air
air international
international air
air GVA
GVA
domestic
domestic air
air connectivity
connectivity
passengers
passengers passengers
passengers

Applied forecasts from

Addressable Market
chapter based on
generalised journey
time for each mode
and elasticity of

Domestic
demand to journey
time

Modal shift will vary by
scenario
Long haul planes
Air passengers on
International
GVA impact to UK
assumed to carry long haul flights connectivity is a calculated by applying
1.95 times as many increase pro rata function of capacity elasticity to
passengers as short based on existing and size of destination connectivity of 0.007
haul planes Heathrow airport
international flights

Passenger demand
passengers shifting used as a proxy for
to HSR uplifted by a capacity
factor of 1.95 to
estimate change in
long haul
passengers from
Heathrow

(1): Ratio of long haul passengers per plane to short haul passengers per plane based on ACL data indicating average of 144 passengers per
domestic short haul flight / 280 passengers per long haul flight
(2): International connectivity index = passengers per year * annual passenger traffic at destination airport as applied in the Hub Airports study
6
 Linking HSR directly to Heathrow Airport via an on-airport
station will increase GDP by £9bn, £2.4bn more than an off-
airport station (i.e. Old Oak Common)

Productivity gain resulting from linking High Speed Rail to Heathrow Airport

10
9
9

7 6.6 Comment
Comment

6

Increase
Increase inin productivity
productivity isis
£bn PV

£2.4bn
£2.4bn more
more inin the
the
5 integrated
integrated on/near
on/near airport
airport
station
station scenario
scenario thanthan the
the
4 off-airport
off-airport station
station scenario
scenario

0
Off airport station Integrated on/near airport station

(1): 60 year asset life

(2): Discount rate of 3.5% a year until 2040, reducing to 3.0% after 30 years and 2.5% thereafter (in line with Department for Transport
appraisal guidance)
(3): Real GVA growth of 1.5% per annum
(4): Assumes ‘improved passenger interface’ e.g. passengers are able to check in their bags onto a flight when boarding the high speed train 7
A sensitivity test modelled the impact of extending HSR to
Scotland

Productivity gain resulting from linking High Speed Rail to Heathrow Airport

Base Case Extension of HSR to Scotland

14
12.3
12 Comment
Comment

10

Extending
Extending thethe HSR
HSR
9 9 network
network to Scotland makes
to Scotland makes
rail
rail more
more competitive
competitive andand
8
£bn PV

improves
improves thethe productivity
productivity
6.6 gain
gain to
to £3.3bn
£3.3bn for
for the
the
integrated
integrated station over
station over the
the
6
off-airport
off-airport station
station

0
Off airport station Integrated on/near airport station

8
Providing an integrated on/near airport station for HSR
increases productivity more than the Old Oak Common option

An integrated on/near airport solution offers a potential connectivity benefit

of £9bn, £2.4bn higher than the benefit associated with the Old Oak
Common baseline

This is generated through additional long-haul flights from Heathrow

provided at the expense of short-haul UK domestic flights, whose
passengers shift from air to high speed rail

The productivity gain increases further if the high speed network is

extended to Scotland (£3.3bn)