EMPLOYMENT GENERATION IN CONTEXT OF SE AIRPORT CAPACITY EXPANSION TO 2030

1. EMPLOYMENT GENERATION IN CONTEXT OF SE AIRPORT CAPACITY EXPANSION TO 2030 A Surrey Perspective Martin Shenfield BERKELEY HANOVER CONSULTING LIMITED (BHC) SEPTEMBER 2013

2. 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

3. Independent Transport Commission May 2013 “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.”

4. 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

5. 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

6. 3. BHC VIEWS ON RUNWAY SCENARIOS IN THE SE

7. The Core Scenarios • De minimis • Maximize Existing Infrastructure • New Runway(s) at Existing Airports • New Airport Development (NAD) in SE

8. 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).

9. 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

10. 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?

11. 4. NATURE OF EMPLOYMENT IMPACTS

12. How LHR Influences the Surrey Economy

13. 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 The LHR Numbers (’000) – 2010/2012

14. 5. ON AND OFF AIRPORT JOBS AND OPERATIONS AT LHR AND LGW FOR SURREY RESIDENTS Note: This does not include catalytic impacts

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

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

17. 6. CATALYTIC IMPACTS – WHAT ARE THEY AND HOW DO THEY OCCUR?

18. 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

19. What Type of Companies Are We Talking About?

20. 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?

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

22. 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

23. 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

24. 7. FORECASTS

25. Employment Impact in Surrey (000 jobs)

26. 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