Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

London's Heathrow used to be an embarrassment. Yet after an expensive face-lift, Europe's busiest airport is far less hellish now than, say, New York's JFK. Targeted investment works.

Still, cosmetic surgery gets you only so far. Heathrow's two runways are operating at full capacity, so on Tuesday Theresa May is expected to approve the building of a third.

European Leader
Heathrow is Europe's busiest airport but other international hubs have more room to grow
Source: ACI
Nb. Direct transit passegners counted once

To those unfamiliar with this saga, adding a single landing strip might not seem controversial: Chicago O'Hare has eight. But the staggering 17.6 billion pound ($21.5 billion) cost of the proposed new runway , coupled with Heathrow's congested west London location -- which forces noisy jets to fly over the capital -- make it a poor candidate for further expansion.

Sadly, it seems Britain's leaders will press on regardless, even if they do delay things yet again for political reasons. That's a shame, because there's a better option (hint, it's called Gatwick).

Even if May backs a bigger Heathrow, more legal challenges and delays seem likely. Britain hasn't built a full-length runway in south east England for more than half a century. 

There is an argument that it doesn't need one at all. Heathrow provides almost four out of five of the U.K's long haul flights, but one third of passengers simply hop from one plane to another. That helps Heathrow make money, along with luxury shops like Hermes and Gucci, but it's of questionable value to most Brits.

Heathrow Hub
One third of passengers using Heathrow in 2015 just changed planes there
Source: Heathrow Airport

Capping the number of flights would mean less pollution, noise and road traffic. Why not let the European hubs at Amsterdam, Paris and Frankfurt slug it out for international passengers with Dubai and Abu Dhabi? They're destined to lose anyway.

Unfortunately, while doing nothing is always tempting, the decision to leave the EU changes the calculation. The Brexit vote has left Britain poorer because of sterling's devaluation and looking more isolated. London's status as a pre-eminent finance center is in danger. So if Britain wants to increase trade with non-EU partners, adding more flights to China and other emerging markets would seem prudent.

May's enthusiasm for infrastructure spending is also sensible. Monetary policy alone probably won't lift Britain from any economic funk. That said, her choices so far haven't been great. Heathrow's plan involves building over one of the country's busiest motorways and flattening a village, and must rank as one of the world's most costly bits of tarmac.

Heathrow Hubris?
The cost of Heathrow's third runway project is greater than its existing asset base
Source: Heathrow

The price is similar to the 18 billion pound cost of the Hinkley nuclear power plant, another questionable project that May's government had to green light to make Britain appear open for business -- and keep China happy.

As with Hinkley, taxpayers won't foot the bill directly. Heathrow's expansion will be funded ultimately by airlines and their passengers, presumably through another increase of landing fees. Even so, it's likely a new runway there would need a large public subsidy to improve transport infrastructure. Estimates vary but several billion pounds seems probable. 

Even if you acknowledge the economic rationale for Britain pursuing an extra runway, the question remains: why Heathrow? Adding a second runway at fast-growing Gatwick would deliver the extra landing capacity London needs, while costing less than half as much at 7.8 billion pounds. Plus, it's promised to keep landing charges low and do without a taxpayer top-up.

Airport Wars
Heathrow remains by far the UK's largest airport but Gatwick has grown rapidly
Source: CAA

Located in a less densely populated area 30 miles south of the capital with decent rail links to the city, expanding Gatwick would create fewer air and noise pollution problems and uproot fewer families. Although a state commission concluded that Heathrow's expansion would deliver more long-term benefits for the U.K. economy, it's hard to have much confidence in forecasts that extend out by 60 years.

Some infrastructure projects have the power to inspire, such as the high-speed train to Paris or the £15 billion London CrossRail project. But it's hard to feel excited about pouring concrete over an already crowded and polluted part of west London. Making Gatwick into a worthy competitor to Heathrow would be a more fitting proposition for post-Brexit Britain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Heathrow says it is looking at ways to lower these costs.

  2. Of course, the price tag includes other stuff eg. terminal buildings

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net