UK risks being cut off from growth by poor trade links, says new study

• Report shows direct flights are critical to trade with emerging markets
• UK missing out as trade goes to France, Germany and Holland
• Lack of connections may be costing UK £1.2bn per annum in lost trade

New economic research published today claims that Britain “risks being cut off from global growth” and becoming “a less competitive place to do business” because it is losing out to European competitors in the battle for flights to emerging markets.

These are the findings of ‘Connecting for Growth’, a new report by Frontier Economics, which says that a lack of direct flights to emerging markets may already be costing the UK £1.2bn a year as trade goes to better-connected competitors. This figure could rise to £1.6bn by 2021 - equivalent to one-third of the UK’s current balance of trade deficit. The net present value of this missed opportunity to the UK economy over the next 10 years totals £14bn at a conservative estimate.

The report establishes a direct relationship between frequent direct air connections and improved volumes of trade and investment. It finds that UK businesses trade 20 times as much with emerging market countries that have a direct daily flight to the UK as they do with those countries that do not.

However, the report warns that only a major transfer hub is able to serve such destinations, and because the UK’s hub airport at Heathrow is full, Britain is missing out on opportunities for trade and falling behind European competitors. The report finds that Paris and Frankfurt already boast 1,000 more annual flights to the three largest cities in China than Heathrow. It also finds that there are 21 emerging market destinations with daily flights from other European hubs that are not served from Heathrow; including destinations such as Manila, Guangzhou, and Jakarta.

Colin Matthews, BAA Chief Executive, said: “The Government has asked the question: is a hub airport important to the UK? This research answers that question with an emphatic ‘yes’.

“The centre of gravity in the world economy is shifting and Britain should be forging new links with emerging markets. Instead we are edging towards a future as an island cut-off from some of the world’s most important markets.

“The opportunity for the UK to establish itself as the leader in Europe in its connections to India, China and other important markets still exists. But if Britain is not to lose out to international competitors, we need an aviation policy from Government that recognises the role of a hub airport in supporting growth – and we need it quickly.”

Stephen Phillips, Chief Executive, China-Britain Business Council, said: “The growth in trade with emerging markets is of the utmost importance for the UK. China is our largest trading partner outside of the EU and USA, and exports of UK goods to China increased 41% in 2010. For companies to win and conduct effective business in China it is often essential for them to visit the country regularly.

“The China-Britain Business Council has identified a wide array of exciting business opportunities in fast-growing regional cities across the length and breadth of China, not just in Beijing and Shanghai where there are currently direct flights. At CBBC we feel it is essential that UK companies take advantage of this potential. If British firms don’t, others will. More flights to China, and opening up direct flights from the UK to China's regional cities, would assist British companies in seizing the huge opportunities available.”

Neil Chesters, one of the authors of the Frontier Economics report, said: “This report shows not only the importance of protecting and promoting a hub airport, but that doing so will directly support the Government’s ambitions to nurture an export-led recovery and put the UK back on the path to sustained economic growth.”

Key findings of the Frontier Economics report

• 76,000 people work at Heathrow airport, including around 50,000 full time in the aviation sector. A further 180,000 jobs are supported across the UK by the spending of overseas residents arriving on long haul flights at Heathrow. The long haul routes these visitors use at Heathrow are not viable at other UK airports.
• London is connected to 82 long haul destinations by airlines offering daily flights or better at Heathrow. Heathrow handles 80% of all long haul passengers that come to the UK.
• Heathrow welcomes 4 million long haul visitors from overseas a year to the UK, who spend £4.4bn while visiting.
• 20% of long haul passengers from overseas at Heathrow come to Britain on business: The airlines’ route networks at Heathrow help sustain the £600bn a year of trade between the UK and the rest of the world.
• Heathrow serves as a hub, facilitating around 8 million transfers a year. Without these transfer passengers the majority of long-haul routes at Heathrow would face cuts in frequency and / or substantial fares increases. Some routes would not be viable at all.
• In addition, Frontier estimates that around 2.5 million passengers transferring through Heathrow stopover in London, and spend, on average, more than £500 each per visit.
• Because of capacity constraints, long haul routes have squeezed out short haul ones at Heathrow: Heathrow currently serves just 46 short haul routes, compared to over 70 served by Frankfurt and Paris. Furthermore, airlines at Heathrow are losing transfer passengers to carriers based at other hub airports. The UK economy would be boosted if these passengers could be served via the UK instead.
• Frontier has conservatively predicted that Heathrow could increase its share of European transfer passengers from 16% to 21% if it was able to fulfil its potential. 45 destinations could be viably added to the route network at Heathrow, including 15 routes to Emerging Markets.
• There are many Emerging Market destinations that airlines at Heathrow cannot serve because of insufficient airport capacity. There are 25 Emerging Market destinations with daily flights from other European hubs, and 13 more with at least a weekly connection that are not well served, or not served at all from Heathrow.

• These Emerging Markets are where the majority of world economic growth will be for the foreseeable future. Frontier estimates that UK businesses are missing out on £1.2 billion a year now, and that this trade gap will widen to at least £1.6 billion a year by 2021, as these countries’ economies continue to grow.
• If Heathrow’s capacity remains constrained, Heathrow is likely to lose its position as Europe’s busiest airport by 2021, falling to third behind Frankfurt and Paris Charles de Gaule, with Amsterdam Schiphol close behind.

http://hub.heathrowairport.com/