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Edinburgh Research Explorer The role of South East airports in providing connectivity for the UK: regional dependence on foreign hubs (Response to the Airports Commission call for evidence on connectivity) Citation for published version: Suau-Sanchez, P, Voltes-Dorta, A & Rodríguez-Déniz, H The role of South East airports in providing connectivity for the UK: regional dependence on foreign hubs (Response to the Airports Commission call for evidence on connectivity).

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The role of South East airports in providing connectivity for the UK: regional dependence on foreign hubs

Response to the consultation ‘Discussion Paper 06: Utilisation of the UK’s Existing Airport Capacity’, prepared by: Pere Suau-Sanchez Centre for Air Transport Management, Cranfield University Cranfield, MK43 0TR Bedfordshire, United Kingdom [email protected]

Augusto Voltes-Dorta University of Edinburgh Business School Management Science and Business Economics Group Edinburgh, EH8 9JS, United Kingdom [email protected]

Héctor Rodríguez-Déniz Universidad de Las Palmas de Gran Canaria Facultad de Economía y Turismo D.3.01 35017 Las Palmas de Gran Canaria, Spain [email protected]

July 2014

Contents Executive Summary

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1. Introduction

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2. The different roles of London Heathrow

5

3. The gateways of UK regional airports

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References Appendix A: MIDT Dataset Appendix B: Connectivity statistics for the Home Nations

11 12 13

Disclaimer The views and opinions expressed in this report are those of the authors and do not represent the position of Cranfield University, the University of Edinburgh, or the University of Las Palmas de Gran Canaria in regards to the UK aviation policy debate.

Executive Summary 1. The reduction in air connectivity between London and UK regions in recent years entails the risk of “decoupling” of UK regional air transport markets. This is evidenced by an increase in the number of regional passengers travelling via foreign hubs, rather than through London Heathrow, to destinations all over the world. These trends may challenge the status of Heathrow as the main hub “for the UK” and that future regional connectivity to world markets could be vulnerable to foreign aviation policies. 2. The objective of this report is to provide detailed and objective evidence on the extent of the aforementioned “decoupling” of UK regional air transport markets as well as measuring the relative contribution of London Heathrow in its dual role as domestic and international hub. While previous publications on this topic from the Airports Commission employ limited CAA statistics, this report benefits from access to the well-known Market Information Data Transfer (MIDT) database, which provides enough information to analyse the actual hub choices of UK passengers travelling on international routes. 3. Results show that the vast majority (85%) of passengers originating from UK regional airports are able to travel non-stop to their destinations, mainly because of the good pointto-point connectivity to European countries. The proportion of direct travel, however, is much lower in long-haul markets, where a significant dependence on intermediate hubs exists (between 50% and 90% of trips require a transfer). Furthermore, around 76% of the connecting traffic between UK regions and the rest of the world is served via non-UK hubs, located mainly in Europe and the Middle East. 4. The dependence on foreign hubs is particularly high in the routes to/from Asia-Pacific, where above 82% of passengers originating from UK regional airports use transfer flights. In these markets, London Heathrow provides service to 12% of the passengers –the same proportion as Amsterdam–, while Dubai’s traffic share exceeds 32%. 5. A similar picture appears when analysing regional traffic to/from BRIC countries. Transfer itineraries account for over 90% of passenger journeys (there are only direct flights between the UK regions and Russia) and the share of traffic handled by non-UK hubs is slightly above 72%. Despite the relatively small size of the actual market (1.3% of total passenger traffic originating from UK regions), this result is significant in light of the importance of BRIC countries as emerging economies and the strategic implications of having such a large dependence on foreign airports and airlines. 6. With regards to Heathrow, results show that the London hub benefits from its significant traffic generation to remain the most central gateway for overall UK air transport markets, as well as the main regional gateway to North America and the Middle East. However, results also suggest that strong hub competition in Europe, coupled with the lack of new route developments due to congestion, may damage Heathrow’s ranking among world-class connecting gateways in the coming years.

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1. Introduction 1.1 In 2013, approximately 138 million passengers travelled through one of the five main airports serving the South East of England: Heathrow, Gatwick, Stansted, Luton, and London City (CAA, 2014). These five airports combined offered flights to 399 international destinations in 106 countries all over the world (Source: Official Airline Guide). In contrast, all remaining airports outside the South East combined (they will be referred throughout this report as “regional airports”) provide direct flights to only half the destinations that are available from London (200 international destinations in 52 countries). These figures support the view that airports in the South East should play a significant role in providing worldwide connectivity for the other UK regions. 1.2 The existing literature has already established the influence of air traffic services on economic development and the attractiveness of a region (e.g., Goetz, 1992; Brueckner, 2003; Green, 2007; Bel and Fageda, 2008; Bilotkach, 2013). Furthermore, due to the particular economic geography of the UK, which gravitates around a large core city, air transport connectivity is a crucial factor influencing the position of regional population centres in the world-city hierarchy (Zook and Brunn, 2006; Derudder and Witlox, 2008), and their integration in the globalization dynamics (Goetz and Graham, 2004; Cidell, 2006; Otiso et al., 2011). Whilst UK regions have become well connected to many European destinations with the growth of low-cost airlines, their weak position in the UK urban hierarchy limits their ability to capture direct air services to intercontinental destinations, along with the added value they bring (Shin and Timberlake, 2000; Hall, 2009; Bentlage, et al., 2013). Currently, intercontinental markets are accessible indirectly via a hub airport, for which the natural choice seems to be Heathrow (ITC, 2013). This view is implicitly stated in the UK Aviation Policy Framework document, which points out that “continued connectivity to London is essential to regional economies and national cohesion” (UK Government, 2013).

Figure 1. Evolution of regional UK destinations served from selected airports 2004-2013 Source: OAG, own elaboration

1.3 In spite of that, the evolution of traffic at the five main London airports during the last decade shows a steady decrease in the number of annual flights available to other UK regions, from 74,875 flights in 2004 to 51,647 in 2013 (a 31% drop). A similar trend is observed in the number of regional UK cities that are connected by air to the capital. Figure 1 shows that, since 2009, the five main London airports combined are connected by air to fewer cities in the rest of the UK than Amsterdam and, as of 2013, they reach the same number of cities as Paris-Charles de Gaulle. Both European hubs combined offer 35,308 annual flights to UK regions, which represents 68% of what is offered by the London airports. 1.4 The shortage of runway capacity in the South East can be cited as the cause of the problem. Heathrow is already operating at full capacity and presents important expansion difficulties due to the urban

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developments around the airport. Given its level of saturation, airlines have given up domestic services and, by relying on the strong London market, have substituted them with long-haul services flown by larger aircraft that accommodate more passengers (Table 1). In addition, the lack of room for new route developments at Heathrow has led to an evident stagnation in the number of destinations served during the last decade, especially in comparison with other European and Middle Eastern hubs. These figures challenge the traditional status of Heathrow, not only as the most important hub “for the UK”, but also as one of the world’s main international gateways. Table 1. Evolution of traffic indicators at London Heathrow and selected airports 2004-2013 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

31,218 31,880 30,011 30,224 31,135 26,632 25,743 23,097 22,739 23,375 Number of annual flights to UK regions Seats per aircraft movement 198 200 197 202 195 195 203 202 207 210 189 185 194 186 176 172 167 173 176 176 Number of destinations served-Heathrow Number of destinations served at Amsterdam 240 250 250 259 246 251 266 278 275 275 239 259 260 264 277 285 280 279 273 274 Number of destinations served at Paris CDG Number of destinations served at Frankfurt 291 293 286 297 289 285 294 295 309 293 114 124 149 155 158 171 173 188 216 234 Number of destinations served at Istanbul Number of destinations served at Dubai 139 136 147 154 163 169 180 190 200 220

Change 04-13% -25.1% 6.1% -6.9% 14.6% 14.6% 0.7% 105.3% 58.3%

Source: OAG, own elaboration

1.5 This situation, in combination with the strong competition that exists between European, American, Middle Eastern, and Asian major carriers – which seek to transport passengers via their hubs–, is changing the way air transport demand from UK regions is being served. This is evidenced by an increase in the number of UK regional passengers connecting through hubs other than Heathrow, such as Amsterdam, Paris, or Dubai, a fact that has been reported by the UK Government’s Airports 1 Commission (AC, 2014). This suggests the existence of some degree of “decoupling” of UK regional airports from London in an effort to improve their indirect connectivity to intercontinental markets. 1.6 The two main consequences of these trends were pointed out by the Independent Transport Commission (ITC). First, the reduction in the number of flights between the UK regions and London would constrain domestic connectivity. Second, the UK would become dependent on foreign aviation policies to guarantee future regional connectivity to worldwide markets (ITC, 2014). While the problem has indeed been identified, no detailed measurements of the scale of this “decoupling” have been produced, mainly because of the lack of appropriate data on passenger itineraries and hub choices in intercontinental routes. 1.7 Within this context, the objective of this report is to provide detailed evidence on the extent of the aforementioned “decoupling” of UK regional air transport markets as well as measuring the contribution of London Heathrow in its different roles as domestic and international hub. While all previous publications that cover this topic employ limited CAA statistics, this report benefits from access to the well-known Market Information Data Transfer (MIDT) database, which provides enough information to analyse the hub choices of UK regional passengers travelling in international routes. The available data covers all worldwide passenger itineraries served by the European airport network during May 2013.

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Suau-Sanchez and Burghouwt (2012) also report the increasing role of foreign hubs in shaping the accessibility between Spain and the rest of the world.

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2. The different roles of London Heathrow 2.1 Establishing whether Heathrow is currently the most important hub “for the UK” requires first a clarification of what “for the UK” means. In this regard, note that the role played by hub airports is sensitive to the subset of markets considered in the analysis. A single market is typically defined as the total number of passengers travelling between two airports in both directions. Most markets can be served via different itineraries, depending on the points of connection. Thus, an airport can contribute to a market (or a set of markets) in two ways: either as origin/destination or as an intermediate point. When evaluating London Heathrow’s contribution as a domestic hub, this section focuses on all markets between the UK and the rest of the world. For the sake of contrast, Heathrow’s contribution to worldwide and intra-European markets will also be investigated. 2.2 There is also need to define the concept of “hub”. Several authors link that concept to the ability of an airport to support hub-and-spoke airline operations, which are typically achieved by consolidating originating and transfer passenger flows (Button, 2002; Doganis, 2010). Following this definition, Rodriguez-Déniz et al. (2013) proposed two simple demand-based indicators to measure the dimensions of airport “hubbing”: traffic generation and connectivity. The same indices are used throughout this report. 2.3 An airport’s importance as traffic generator (ODi) is calculated as the ratio between the passengers in a relevant set of markets who originate or terminate at the i-th airport (odi), and the total number of 2 unique passengers in the same markets (P) . The second indicator (Ci) measures the airport’s contribution to other origin and destination markets as a connecting gateway. It is calculated as the ratio between connecting passengers at the i-th airport (ci) and total passengers that do not originate 3 or terminate at the i-th airport (P – odi) . This value of “relative connectivity” indicates how important 4 each airport is at the time of facilitating connections between other city-pairs . 2.4 A third indicator of “absolute connectivity” is also included (Ci’), which simply measures the proportion of connecting passengers served by the i-th airport with respect to the total number of unique passengers travelling in connecting routes within the relevant markets (Pc). Finally, in order to put all the connectivity analysis in the appropriate context, the overall connecting rate (CR) in each market will also be reported, defined as the proportion of connecting passengers over total passengers. A high dependence on non-UK hubs can be mitigated or reinforced by connecting rates that are significantly low or high, respectively.

2.5 Table 2 reports the top 20 airports ranked by absolute connectivity (C’) in: 1) worldwide markets served by European airports, 2) markets within the European Economic Area (EEA), 3) routes between the UK and the rest of the world. 2.6 In the worldwide case, Heathrow ranks the first in traffic generation (6.3%), but third in connectivity (behind Frankfurt and Istanbul). Despite the unavailability of time-series data for further evidence, the explosive increase in the number of destinations served from Istanbul (Table 1) suggests that, despite the trade-off between short- and long-haul flights, the lack of new route developments at Heathrow, together with increased hub competition, may damage its ranking among world-class connecting gateways in upcoming years. 2

For example, if there are 14.8 million passengers travelling between the UK and the rest of the world, of which 3.97 million either originate from or terminate at Heathrow, the airport’s OD index in UK↔international markets will be 26.7%. 3 For example, if there are 10.8 million passengers travelling between the UK and the rest of the world who did neither originate nor terminate at Heathrow, yet 150 thousand of those passengers did connect through it, the airport’s C index in UK↔international markets will be 1.4%. 4 It is based on the concept of “flow centrality” developed by Freeman et al. (1991) in the context of social networks.

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Table 2. Top 20 airports according to absolute connectivity in different markets (May 2013) Europe – Worldwide Markets Airport Ci' Ci ODi Frankfurt 8.7% 1.9% 3.3% Istanbul Ataturk 6.9% 1.5% 3.4% Heathrow 6.0% 1.3% 6.3% Amsterdam 5.3% 1.1% 3.4% Paris CDG 5.2% 1.1% 4.7% Munich 4.4% 0.9% 2.7% Dubai 4.2% 0.9% 0.9% Madrid 3.2% 0.7% 3.4% Rome Fiumicino 2.8% 0.6% 3.1% Sheremetyevo 2.7% 0.6% 2.0% Zurich 2.2% 0.5% 2.0% Vienna 2.1% 0.4% 1.7% Doha 1.8% 0.4% 0.2% Copenhagen 1.8% 0.4% 2.3% Oslo 1.5% 0.3% 2.2% Istanbul Sabiha 1.3% 0.3% 1.4% Atlanta 1.2% 0.2% 0.2% Abu Dhabi 1.1% 0.2% 0.1% Lisbon 1.1% 0.2% 1.4% Stockholm 1.1% 0.2% 2.2% Total Passengers: 66,959,805 Connecting rate: 13,813,059 (20.6%)

Markets within the EEA (incl. Switzerland) Airport Ci' Ci Frankfurt 10.5% 1.0% Munich 9.1% 0.8% Amsterdam 5.7% 0.5% Oslo 5.6% 0.5% Copenhagen 5.2% 0.5% Rome Fiumicino 5.0% 0.5% Madrid 4.8% 0.4% Paris CDG 3.8% 0.3% Zurich 3.5% 0.3% Stockholm 3.4% 0.3% Vienna 3.3% 0.3% Heathrow 2.9% 0.3% Barcelona 2.6% 0.2% Duesseldorf 2.0% 0.2% Berlin Tegel 2.0% 0.2% Brussels 1.9% 0.2% Paris Orly 1.7% 0.2% Palma de Mallorca 1.4% 0.1% Gatwick 1.1% 0.1% Lisbon 1.7% 0.2% Total Passengers: 38,028,897 Connecting rate: 3,367,110 (8.9%)

UK – International Markets ODi 2.9% 3.3% 3.9% 3.5% 3.2% 3.7% 4.4% 4.0% 2.3% 3.2% 2.0% 4.7% 5.5% 2.7% 2.7% 2.2% 3.7% 5.0% 5.5% 1.9%

Airport Ci' Ci Dubai 10.0% 1.3% Amsterdam 9.9% 1.3% Heathrow 8.1% 1.4% Frankfurt 5.0% 0.7% Paris CDG 4.1% 0.5% Istanbul Ataturk 3.0% 0.4% Doha 2.4% 0.3% Singapore Changi 2.2% 0.3% Abu Dhabi 2.2% 0.3% Chicago O'Hare 2.1% 0.3% Munich 2.1% 0.3% Newark 1.9% 0.2% Dublin 1.7% 0.2% Atlanta 1.6% 0.2% Madrid 1.5% 0.2% Hong-Kong 1.5% 0.2% Kuala Lumpur 1.4% 0.2% Copenhagen 1.4% 0.2% Zurich 1.3% 0.2% Washington Dulles 1.2% 0.2% Total Passengers: 14,865,572 Connecting rate: 1,913,941 (12.9%)

ODi 1.0% 2.7% 26.7% 1.0% 1.2% 0.5% 0.2% 0.4% 0.2% 0.3% 1.0% 0.6% 3.5% 0.2% 1.0% 0.5% 0.2% 1.1% 0.9% 0.3%

Source: MIDT, own elaboration. EEA: European Economic Area.

2.7 The picture is different in intra-EEA markets. Heathrow becomes the fourth largest “traffic generator”, behind Gatwick, Barcelona, and Palma de Mallorca, which range between 5% and 5.5% ODi. While the connecting rate in this market is limited (less than 9%), since it is terrain for low-cost point-to-point travel, only some airports that are geographically central to West-East flows (i.e., Frankfurt, Munich, Rome-Fiumicino), North-South flows (i.e., Amsterdam), and gateways to remote regions (i.e., Oslo and Copenhagen) play a role in the intra-EEA market from a connectivity perspective. However, the relevant result is that it is Gatwick, and not Heathrow, the main UK airport with regards to EEA traffic. 2.8 In the UK case, Heathrow scores high in both dimensions. The massive level of traffic generation (26.7%) can be linked to the prominence of London as global business centre and tourist destination. In terms of absolute connectivity (Ci’), Heathrow ranks third. Overall, more UK passengers choose Dubai (10%) and Amsterdam (9.9%) as intermediate stops rather than Heathrow (8.1%). Nevertheless, it is important to recognize the distortion of originating traffic, as passengers that originate or terminate at Heathrow do not choose a UK hub to connect and will instead feed other hubs. The Ci indicator removes this distortion and points at Heathrow as the most relevant airport to other citypair markets (1.4%). Thus, despite the number of UK passengers travelling via foreign airports, Heathrow remains the most relatively important hub “for the UK”, as proven by the highest contribution in terms of traffic generation and connectivity to other city-pairs between the UK and the rest of the world. This status, however, is cemented on the enormous level of traffic generated by London. The next section removes the London markets to investigate the role of Heathrow and the South East in providing connectivity exclusively for UK regional airports.

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3. The gateways of UK regional airports 5

3.1 Figure 2 summarizes the distribution of UK regional passenger itineraries to/from worldwide regions . Results show that the vast majority (85%) of passengers originating from UK regional airports are able to travel non-stop to their destinations, mainly because of the good point-to-point connectivity to European countries. The proportion of direct travel, however, is much lower in long-haul markets, where a significant dependence on intermediate hubs exists (between 50% and 90% of trips require a transfer). Furthermore, around 76% of this connecting traffic is served via non-UK hubs, mainly from Europe and the Middle East.

Figure 2. Itineraries of UK regional passengers to/from worldwide regions (May 2013)

3.2 Tables 3 and 4 complement the information from Figure 2 by detailing the top 15 hub choices in 6 terms of absolute connectivity for each market . Heathrow and Amsterdam are the main gateways of UK regional airports to access the rest of the world, both connecting approximately the same proportion of transfer passengers (Ci’=19.1%). The third most important gateway is Dubai (Ci’=10.7%), followed by Frankfurt (Ci’=6.1%) and Paris-CDG (Ci’=6%). Gatwick makes a small contribution that increases the share of absolute connectivity of South East England airports to 21.7%. 3.3 Heathrow acts as the main regional gateway for two international markets, the Middle East (Ci’=21.4%) and North America (Ci’=35.2%), the latter being the most important connecting market in terms of long-haul passengers from UK regional airports. In these two markets, British Airways, together with the other Oneworld members, offers the highest number of onward destinations to North America from Heathrow (28 destinations). For the Middle East market, Istanbul, Dubai and Frankfurt offered more destinations than Heathrow (10 destinations by Oneworld members), but British Airways and KLM serve a wider range of UK regional airports, hence they can capture more demand and obtain a higher Ci’ value. 5

Disaggregated statistics for England, Scotland, Northern Ireland, and Wales are provided in Appendix B. Note that proportions in Tables 3 and 4 are calculated over connecting passengers, while in Figure 2 and Table 5 they are calculated over total passengers. All these proportions are fully equivalent. 6

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Table 3. Top 15 hub choices in routes to/from regional UK airports by geographical market (May 2013) Regional UK to/from World Hub airport Ci' Amsterdam 19.1% Heathrow 19.1% Dubai 10.7% Frankfurt 6.1% Paris CDG 6.0% Newark 2.9% Istanbul Ataturk 2.7% Gatwick 2.6% Dublin 2.5% Munich 2.2% Abu Dhabi 2.0% Brussels 1.9% Copenhagen 1.8% Doha 1.4% Philadelphia 1.3% Total Passengers 5,615,182 Share of total 100% Connecting pax. 809,713 Connecting rate 14.4% Absolute connectivity: Via SEE Hubs 21.7% Via Alt. EEA hubs 43.9% Via Non-UK Hubs 76.6%

Regional UK to/from EEA Hub airport Ci’ Amsterdam 23.6% Heathrow 14.6% Frankfurt 9.2% Paris CDG 6.0% Dublin 4.7% Copenhagen 4.2% Gatwick 4.1% Munich 4.0% Brussels 3.4% Dusseldorf 2.0% Zurich 1.7% Manchester 1.4% Edinburgh 1.1% Madrid 1.1% Stavanger 1.1% 4,559,413 81.2% 336,222 7.4%

Regional UK to/from Rest of Europe (non-EEA) Hub airport Ci’ Istanbul Ataturk 29.2% Heathrow 19.9% Amsterdam 16.1% Frankfurt 11.6% Munich 5.2% Paris CDG 4.4% Gatwick 1.4% Zurich 1.2% Brussels 1.0% Istanbul Sabiha 1.0% Dusseldorf 0.9% Copenhagen 0.8% Dublin 0.8% Dalaman 0.5% Prague 0.3% 262,143 4.7% 28,802 11.0%

Regional UK to/from Africa Hub airport Ci’ Amsterdam 21.5% Dubai 17.1% Paris CDG 16.6% Heathrow 16.5% Frankfurt 5.6% Brussels 3.8% Istanbul Ataturk 3.4% Lusaka 2.0% Gatwick 1.4% Abu Dhabi 1.1% Doha 1.0% Lisbon 0.7% Madrid 0.7% Casablanca 0.6% Toulouse 0.6% 99,675 1.8% 52,324 52.5%

Regional UK to/from Middle East Hub airport Ci’ Heathrow 21.4% Amsterdam 18.3% Istanbul Ataturk 16.2% Dubai 15.5% Frankfurt 6.4% Abu Dhabi 4.8% Doha 3.8% Paris CDG 3.4% Gatwick 1.7% Manchester 1.5% Zurich 1.1% Munich 0.8% Cairo 0.7% Brussels 0.5% Antalya 0.5% 164,943 2.9% 55,391 33.6%

19.3% 67.6% 76.8%

21.6% 72.7% 77.8%

17.9% 52.2% 81.9%

23.1% 31.6% 74.5%

Source: MIDT, own elaboration. SEE: South East England. EEA: European Economic Area. Table 4. Top 15 hub choices in routes to/from regional UK airports by geographical market (May 2013) Regional UK to/from Latin America and Caribbean Hub airport Amsterdam Paris CDG Heathrow Gatwick Frankfurt Newark Atlanta Lisbon Saint Lucia New York JFK Barbados Buenos Aires Brussels Philadelphia Munich Total Passengers Share of total Connecting passengers Connecting rate Absolute connectivity: Via SEE Hubs Via Alt. EEA hubs Via Non-UK Hubs

Ci’ 26.5% 19.3% 16.1% 13.1% 5.4% 3.6% 3.2% 1.7% 1.6% 0.9% 0.6% 0.5% 0.5% 0.5% 0.4% 47,760 0.8% 17,749 37.2% 29.3% 54.6% 70.5%

Regional UK to/from North America Hub airport Heathrow Newark Amsterdam Philadelphia Atlanta O'Hare Dulles Paris CDG Dublin Gatwick Frankfurt Keflavik New York JFK Toronto Brussels

Ci’ 35.2% 15.6% 13.0% 7.4% 6.5% 4.1% 3.3% 3.1% 2.9% 1.8% 1.6% 1.5% 1.1% 0.6% 0.4% 268,251 4.8% 144,020 53.7% 37.1% 23.1% 62.6%

Regional UK to/from Asia-Pacific Hub airport Dubai Amsterdam Heathrow Abu Dhabi Doha Paris CDG Frankfurt Singapore Istanbul Ataturk Munich Bangkok Zurich Ashgabat Kuala Lumpur Brussels

Ci’ 39.5% 14.5% 14.5% 7.5% 5.2% 5.2% 3.0% 2.9% 1.5% 1.2% 0.7% 0.7% 0.5% 0.3% 0.2% 212,997 3.8% 175,205 82.3% 14.6% 25.1% 85.3%

Regional UK to/from BRIC Hub airport Dubai Heathrow Amsterdam Paris CDG Frankfurt Doha Abu Dhabi Istanbul Ataturk Munich Zurich Ashgabat Brussels Lisbon Copenhagen Gatwick

Ci’ 25.1% 20.2% 19.2% 9.8% 6.7% 5.8% 3.8% 1.6% 1.5% 1.4% 1.3% 0.8% 0.5% 0.5% 0.3% 72,518 1.3% 66,168 91.2% 20.5% 40.7% 79.4%

Source: MIDT, own elaboration. SEE: South East England. BRIC: Brazil, Russia, India, China.

3.4 While the large number of UK regional airports served by KLM places Amsterdam as an important gateway, it only ranks above Heathrow in the smallest markets –i.e., Latin America and Caribbean (0.8% of the total demand) and Africa (1.8% of the total demand)– and the lower yield markets –i.e., the short-haul EEA market. 3.5 For reaching the growingly important Asia-Pacific market, where above 82% of passengers originating from UK regional airports use transfer flights, Dubai is by far the airport delivering a higher Ci’ value:

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almost 40% of the connecting passengers to Asia-Pacific fly via Dubai. In May 2013, Emirates only served four –but major– UK regional airports (i.e., Birmingham, Manchester, Glasgow and Newcastle), but the exceptional geographical position of Dubai and the large number of destinations offered by Emirates to this market (36 destinations compared to the only 16 destinations offered by Oneworld at Heathrow) make of Dubai the prime gateway of UK regions to Asia-Pacific. Indeed, as highlighted by Murel and O’Connell (2011) the “Gulf carriers are growing traffic by cannibalising the traditional traffic flows between Asian and European hubs, and by connecting secondary cities as a result of exercising their sixth freedom traffic rights”. 3.6 Tables 3 and 4 also show a relatively new player, Istanbul, that because of its geographical position, ranks fairly high as gateway to the Middle East and it is the first hub choice to access non-EEA European destinations. Nevertheless, the latter is mainly a point-to-point market and connecting passengers only represent 11% of total traffic. 3.7 Connectivity to/from BRIC countries is analysed separately. Brazil, Russia, India, and China accumulate more than 40% of the world population and are implicitly given strategic importance by the UK Aviation policy framework when measuring UK connectivity to emerging economies. It is worth noting that trips between BRIC countries and UK regional airports only account for 1.3% of the total passenger demand (Note that this does not account for UK residents outside South East England that decide to commute to Heathrow or Gatwick for a long-haul trip). Within this small level of traffic, 91.2% of the passengers connect in an intermediate hub, and 79.4% of those transfer passengers connect using a non-UK hub (25.1% fly via Dubai and 19.2% via Amsterdam), while Heathrow’s contribution is slightly over 20%. Table 5. UK passenger breakdown to/from BRIC countries, May 2013. Total UK airports to/from Country Brazil China India Russia Total to/from BRIC Share Regional UK airports to/from Country Brazil China India Russia Total to/from BRIC Share

Total Passengers 45,128 91,965 190,462 111,511 439,066 100%

Total Passengers 4,935 23,665 30,325 13,593 72,518 100%

Direct 21,267 45,158 85,176 89,715 241,316 55%

Direct 0 0 0 6,205 6,205 8.6%

Via South East hubs 1,371 3,272 7,004 1,917 13,564 3.1%

Via EEA hubs

Via South East hubs 1,371 3,272 7,004 1,917 13,564 18.7%

Via EEA hubs

13,426 19,087 6,178 12,015 50,706 11.5%

3,536 14,708 3,547 5,167 26,958 37.2%

Via rest of World hubs 9,064 24,448 92,104 7,864 133,480 30.4%

Share to/from country 10.30% 20.90% 43.40% 25.40%

Via rest of World hubs 28 5,685 19,774 304 25,791 35.6%

Share to/from country 6.8% 32.6% 41.8% 18.7%

100%

100%

Source: MIDT, own elaboration. SEE: South East England. BRIC: Brazil, Russia, India, China.

3.8 Table 5 breaks down the UK passenger demand to each of the BRIC countries. As of May 2013, only Russia is served directly from UK regional airports. Although the air service agreement between the UK and India allows to operate between any two airports of these countries (even though considering some frequency limitations for airports other than Heathrow) and the EU-Brazil market enjoys an “open skies” type air service agreement, only Manchester and Birmingham have non-stop services to India during a limited number of summer months that are out of the available cross-sectional sample. In the case of China, the current agreement limits the frequency to 31 return services per week 7 between six destinations in both countries. Thus, while UK regions are highly dependent on foreign airports to be connected to BRIC countries, there is still room for further relaxation of the bilateral air service agreements in order to improve the prospects of establishing non-stop connections.

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In regards to China, it is also worth highlighting the impact of the current fees required by the UK to obtain a Visa, which are higher than those payable for the Schengen area.

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3.9

In summary, the conclusion is that UK regions are well connected to Europe (EEA and non-EEA countries), but have a significant dependence on intermediate hubs to access long-haul markets. Overall, three quarters of the connecting traffic from UK regional airports depends on non-UK hubs, which, from a policy perspective, could represent an exposure to uncertain decisions that can take foreign governments in regards to hub development. Still, Heathrow remains the main gateway of UK regions to North America and the Middle East, although it is facing substantial competition, especially from Amsterdam and Dubai, in the other long-haul markets. In this regard, market coverage seems to play an important role for gaining market share. Having a large feeding network from UK regions seems to help KLM in boosting connectivity from Amsterdam and having a wide range of onward destinations appears to help British Airways in North America and the Middle East markets, and Emirates in the Asia-Pacific market. Obviously, the different network configurations do not answer exclusively to airlines’ strategies, they also depend on historic links and commercial relationships, as well as regulatory approaches to bilateral air service agreements and the application of the freedoms of the air.

3.10

Finally, some results might be also explained by other reasons that, although beyond the scope of this report, are still worth highlighting. The ranking position of some airports in certain markets suggests that travellers are willing to withstand longer flying times and big detours even when a quicker travel option is available. This is the case, for example, of Dubai for the African market (Ci’=17.1) and of Amsterdam for the North American market (Ci’=13%). This conforms with the findings of previous studies that identify a trade-off between airfares and travel time in air passengers’ choice of itineraries (see, e.g. Hess, 2007).

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References AC, 2014. Discussion Paper 06: Utilisation of the UK’s Existing Airport Capacity. London: Airports Commission. Bel, G., and Fageda, X. 2008. Getting there fast: globalization, intercontinental flights and location of headquarters. Journal of Economic Geography 8, 471-495. Bentlage, M., Lüthi, S., Thierstein, A. (2013) Knowledge creation in German agglomerations and accessibility – An approach involving non-physical connectivity. Cities 30, 47-58. Bilotkach, V., 2013. Are Airports Engines of Economic Development? A Dynamic Panel Data Approach, working paper. Brueckner, J.K., 2003. Airline traffic and urban economic development, Urban Studies 40, 1455-1469. Button, K., 2002. Debunking some common myths about airport hubs. Journal of Air Transport Management 8, 177-188. CAA. 2014. Aviation Statistics. UK Civil Aviation Authority. Cidell, J. 2006. Air transportation, airports, and the discourses and practices of globalization. Urban Geography 27, 651–663. Derudder, B., and Witlox, F. 2008. Mapping world city networks through airline flows: context, relevance, and problems. Journal of Transport Geography 16(5), 305–312. Doganis, R., 2010. Flying off course: the economics of international airlines (4th Ed.). Routledge. London. Freeman, L., Borgatti, S., and White, R., 1991. Centrality in valued graphs: a measure of betweenness based on network flow. Social Networks 13, 141-154. Goetz, A. 1992. Air passenger transportation and growth in the U.S. urban system. 1950-1987. Growth and Change 23(2), 217–238. Goetz, A., and Graham, B. 2004. Air transport globalization, liberalization and sustainability: post-2001 policy dynamics in the United States and Europe. Journal of Transport Geography 12, 265–276. Green, R., 2007. Airports and Economic Development, Real Estate Economics 35, 91–112. Hall, P., Marshall, S., Lowe, M., 2001. The changing urban hierarchy in England and Wales, 1913-1998. Regional Studies 35, 775-807. Hess, S. 2007. Posterior analysis of random taste coefficients in air travel behaviour modelling. Journal of Air Transport Management 13 (4), 203–212. ITC, 2013. Flying into the future. Key issues for assessing Britain’s aviation infrastructure needs. London: Independent Transport Commission. ITC, 2014. The optimal size of a UK hub airport. London: Independent Transport Commission. Murel, M., O’Connell, J.F., 2011. Potential for Abu Dhabi, Doha and Dubai Airports to reach their traffic objectives. Research in Transportation Business & Management 1, 36-46. Otiso, K., Derudder, D., Bassens, L., Devriendt, H., and Witlox, F. 2011, Airline connectivity as a measure of the globalization of African cities. Applied Geography 31, 609–620. Rodríguez-Déniz, H., Suau-Sanchez, P., and Voltes-Dorta, A. 2013. Classifying airports according to their hub dimensions: an application to the US domestic network. Journal of Transport Geography 33, 188-195. Shin. K., and Timberlake, M. 2000. World cities in Asia: cliques, centrality and connectedness. Urban Studies 37, 2257–2285. Suau-Sanchez, P., Voltes-Dorta, A., and Rodríguez-Déniz, H. 2013. The role of London airports in providing connectivity for the uk: regional dependence on foreign hubs. West Midlands Economic Forum. Coventry 2014. Suau-Sanchez, P., and Burghouwt, G., 2012. Connectivity levels and the competitive position of Spanish airports and Iberia’s network rationalization strategy, 2001-2007. Journal of Air Transport Management 18, 47-53. UK Government. 2013. Aviation Policy Framework. March 2013. Zook, M. and Brunn, S. 2006. From podes to antipodes: positionalities and global airline geographies. Annals of the Association of American Geographers 96, 471–490.

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Appendix A: MIDT Dataset A.1 A Marketing Information Data Transfer (MIDT) dataset was obtained from the OAG Traffic Analyser and contains a large sample of airline bookings for May 2013. This month was chosen as its traffic is close to the average monthly traffic for 2013. Each record contains information on the published airline, the points of origin and destination, the connecting airports (up to two intermediate stops), and the number of passengers. All worldwide markets that are served by at least one European airport are represented. This includes all itineraries that originate and/or terminate in Europe, as well as those markets between other geographic regions that connect via at least one European hub. A.2 The dataset contains 489,573 different itineraries involving 66.9 million passengers, 436 airlines, and 2,158 airports (458 from the EEA). Table A1 shows the distribution of this passenger demand by geographical markets. The total share of intra-European traffic is 73.5%. Of the remaining network traffic, 25.6% is devoted to linking Europe with the rest of the world. The remaining 2.2% of passengers make use of European airports as gateways during their journeys between other continents. Table A1. Distribution of passenger demand by geographical markets (May 2013) (passengers travelling between)

European Economic Area (EEA) Rest of Europe (non-EEA) Africa Asia-Pacific Latin America and Caribbean Middle East North America

EEA

39,467,960

Rest of Europe (non-EEA) 4,754,625 4,986,112

Africa

Asia-Pacific

2,805,692 194,130 7,121

3,533,354 1,526,990 24,707 14,866

Latin America and Caribbean 1,468,124 92,764 7,987 41,904 0

Middle East North America

2,077,940 861,170 29,458 22,512 27,111 2,397

4,245,743 330,923 115,009 167,143 0 153,938 0

Source: MIDT, own elaboration.

A3. The original sources of information for the MIDT dataset are Global Distributions Systems (GDSs). According to ARG (2013), while 55% of all bookings of network airlines were done through GDSs in 2012, the proportion falls to 16% for low-cost carriers (LCCs). In order to correct for any possible imbalance, the data provider (OAG) adjusted the GDS bookings using mathematical algorithms based on frequencies and supplied seats. The reliability of these adjustments, in terms of LCC representation, can be judged by calculating the airline traffic shares in the intra-EEA market that result from the dataset. These are shown in Figure A1. The combined market shares of LCCs is approximately 46%, which is virtually the same estimate provided by the European Commission for the common market in 2013 (EC, 2014). 20.0% 15.0%

Passenger market share (%)

10.0% 5.0% 0.0%

Figure A1. Top 20 airline traffic shares in intra-EEA markets (May 2013) Source: MIDT, own elaboration.

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Appendix B: Connectivity statistics for the Home Nations B1. Table B1 disaggregates the UK regional traffic to/from worldwide destinations for each of the four Home Nations. The vast majority of traffic (96%) originates or terminates in the English regions (exSouth East) and Scotland. It is worth noting that none of these figures takes into account that passengers may transfer to other UK regions by road or rail to start their journey. In the absence of detailed information on said transfers, this report does not intend to be an accurate representation of the regional air transport demand, rather than an assessment of the connectivity options that are available in each region’s airports. Table B1. Breakdown of UK regional traffic to/from worldwide destinations (May 2013) Traffic originating/terminating in Passengers ('000) Airports in England (ex-South East) 4,358.7 Airports in Scotland 1,032.2 Airports in Northern Ireland 138.9 Airports in Wales 85.3 Total 5,615.1 Source: MIDT, own elaboration.

% 77.6% 18.4% 2.5% 1.5% 100.0%

B2. The results for the English regions (Table B2) are similar to those reported in the main document. While direct connectivity is available to all regions, the dependence on foreign hubs is significant in long-haul markets (Asia-Pacific and BRIC countries) that present much higher connecting rates. Amsterdam and Dubai are the top hub choices while Heathrow remains the main gateway to North America. Table B2. Breakdown of passenger itineraries: England (ex-South East) to/from worldwide destinations (May 2013) English Regions to/from Total Passengers ('000) Direct Transfer via South East England hubs via rest of UK hubs via alternative EEA hubs via Rest of World hubs Total non-UK hubs Source: MIDT, own elaboration.

World

EEA

4,358.7 88.8% 11.2% 1.5% 0.2% 6.0% 3.5% 9.5%

3,547.1 94.1% 5.9% 0.7% 0.3% 4.9% 0.0% 4.9%

Rest of Africa Middle LAC North AsiaBRIC Europe East America Pacific 215.8 76.8 133.7 39.5 176.9 168.8 53.6 91.9% 57.5% 73.0% 74.0% 54.5% 26.1% 10.7% 8.1% 42.5% 27.0% 26.0% 45.5% 73.9% 89.3% 0.9% 4.8% 3.8% 4.6% 12.5% 6.5% 11.2% 0.1% 0.0% 0.5% 0.2% 0.0% 0.0% 0.0% 4.0% 23.1% 8.7% 18.0% 11.1% 19.2% 38.2% 3.1% 14.6% 14.1% 3.3% 21.8% 48.2% 39.9% 7.1% 37.7% 22.8% 21.2% 32.9% 67.4% 78.1%

B3. The results for Scotland (Table B3) indicate that direct connectivity is available to all regions except Asia-Pacific. The dependence on foreign hubs in this market exceeds 70% of passenger traffic, and a similar picture is drawn for the air markets between Scotland and the BRIC countries. In spite of that, London Heathrow is the first hub choice overall and in most geographical markets. These results indicate that any dependence on foreign hubs is not linked to reduced domestic connectivity to London rather than just being an issue of poor direct connectivity from Scottish airports. The objective of developing new non-stop connections between Scotland and the Asia-Pacific region should be given appropriate consideration in the relevant policy frameworks. Table B3. Breakdown of passenger itineraries: Scotland to/from worldwide destinations (May 2013) Scotland to/from Total Passengers Direct Transfer via South East England hubs via rest of UK hubs via alternative EEA hubs via Rest of World hubs Total non-UK hubs

World 1,032.2 75.2% 24.8% 9.3% 1.8% 10.0% 3.7% 13.6%

EEA 823.9 86.4% 13.6% 4.4% 0.6% 8.6% 0.0% 8.6%

Rest of Africa Middle LAC North AsiaBRIC Europe East America Pacific 33.9 18.4 27.2 7.5 80.4 41.0 16.9 74.2% 19.2% 41.8% 22.8% 32.6% 0.0% 2.8% 25.8% 80.8% 58.2% 77.2% 67.4% 100.0% 97.2% 10.5% 25.1% 23.3% 36.7% 34.9% 28.8% 38.3% 0.2% 0.8% 1.7% 0.9% 0.5% 0.4% 0.0% 10.0% 43.6% 19.3% 32.8% 16.5% 27.5% 38.0% 5.2% 11.2% 13.9% 6.8% 15.6% 43.3% 20.9% 15.2% 54.8% 33.2% 39.6% 32.1% 70.8% 58.9%

B4. The results for Northern Ireland (Table B4) indicate that more than 80% passengers fly non-stop to their destinations. In all geographical markets except North America, South East England hubs are the

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most important connecting gateway. The contribution of London airports is crucial in linking Northern Ireland with long-haul destinations in Africa, Asia-Pacific, Latin America & Caribbean, where no direct travel options are available. There is no substantial dependence in foreign hubs at the time of providing connectivity between Northern Ireland and the rest of the world. Table B4. Breakdown of passenger itineraries: Northern Ireland to/from worldwide destinations (May 2013) Northern Ireland to/from Total Passengers ('000) Direct Transfer via South East England hubs via rest of UK hubs via alternative EEA hubs via Rest of World hubs Total non-UK hubs Source: MIDT, own elaboration.

World

EEA

138.9 81.4% 18.6% 10.2% 2.7% 2.4% 3.3% 5.7%

119.6 89.6% 10.4% 5.4% 2.7% 2.4% 0.0% 2.4%

Rest of Africa Middle LAC North AsiaBRIC Europe East America Pacific 3.7 0.9 1.8 0.6 10.1 2.2 1.0 80.9% 0.0% 20.8% 0.0% 25.7% 0.0% 0.0% 19.1% 100.0% 79.2% 100.0% 74.3% 100.0% 100.0% 13.7% 79.2% 66.0% 78.2% 29.6% 81.3% 89.1% 1.1% 4.4% 7.5% 3.5% 1.0% 2.9% 2.8% 2.5% 12.4% 1.6% 3.7% 0.4% 2.6% 4.9% 1.8% 4.0% 4.0% 14.6% 43.4% 13.2% 3.2% 4.2% 16.4% 5.6% 18.3% 43.7% 15.8% 8.1%

B5. The results for Wales (Table B5) indicate that 86.9% of passengers fly non-stop to their destinations. However, there are no direct connections for several long-haul markets, including the BRIC countries, in which 100% of the observed itineraries are served via foreign hubs. While these markets are indeed very small the results are relevant in that any indirect air connectivity between Wales’ own airports and the emerging economies is not provided via the London airport system and is exposed to foreign aviation policies. From the point of view of Welsh residents, the lack of direct connectivity to longhaul destinations may generate the need to transfer by road or rail to London and thus, appropriate services should be made available to ensure that Wales remains well connected with all the world’s regions. Table B5. Breakdown of passenger itineraries: Wales to/from worldwide destinations (May 2013) Wales to/from Total Passengers ('000) Direct Transfer via South East England hubs via rest of UK hubs via alternative EEA hubs via Rest of World hubs Total non-UK hubs Source: MIDT, own elaboration.

World 85.3 86.9% 13.1% 0.1% 0.6% 12.0% 0.3% 12.3%

EEA 68.6 86.6% 13.4% 0.2% 0.5% 12.7% 0.0% 12.7%

Rest of Europe

Africa

8.8 94.2% 5.8% 0.0% 0.2% 4.9% 0.7% 5.6%

3.6 83.0% 17.0% 0.0% 0.7% 15.2% 1.1% 16.3%

Middle East 2.3 66.7% 33.3% 0.0% 2.4% 30.0% 0.9% 30.9%

LAC 0.2 0.0% 100.0% 0.0% 0.0% 87.2% 12.8% 100.0%

North America 0.8 0.0% 100.0% 0.0% 0.4% 98.1% 1.5% 99.6%

AsiaPacific 1.0 0.0% 100.0% 0.0% 0.3% 87.5% 12.2% 99.7%

More detailed air connectivity statistics for the Home Nations are available in the authors’ websites: http://www.peresuau.com http://www.business-school.ed.ac.uk/about/people/939/Augusto/Voltes-Dorta

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BRIC 0.5 0.0% 100.0% 0.0% 0.0% 92.2% 7.8% 100.0%