Aviation, b-school, Business, Management, MBA, Microeconomy

Blaming Heathrow (and splicing it up)

It’s increasingly easier for alienated bare-footed queuing passengers to blame Heathrow (BAA) for the illnesses of the deficient British airport system. Even easier to blame there is the Spanish owner: Ferrovial. But a systemic look at the problem reveals that the responsibility is wide spread, and it may not be that easy.

The airport sector has been traditionally underinvested. A very important stakeholder, the surrounding communities, has been reluctant to give way to hostile-perceived enlargements. Justifiably worried about the environment, may that be atmosphere or noise, or simply about the territorial impact in hindered neighbouring villages, new infrastructures take so many years to be constructed that capacity always lags demand. The results: outdated infrastructures that are working over-capacity, and need to be maintained, overhauled or simply redesigned while in operation, leaving a poor image to travellers passing by.

More capacity is coming: brand-new T5 will open in March 2008

But what does it take to open a new terminal? There’s a lot of regulation in that too. Regulation that can be changing at any moment, as the new security requirements. BAA is required to enforce the law, a law that has changed to tougher requirements that imply additional costs.

But, that’s another point, tariffs are regulated. Airports are not free to choose what they charge the customer. In the case of the British Airports it was decided at some point that they wouldn’t compete with each other. Instead they were to be bound by decree tariffs. So the passengers would spill from one another filling all them up.

It has certainly happened. But the model needs a lot of overhauling too. Competing airports would make additional capacity out of thin air, and improve the customer service. Airports would feel the need to adapt to their customers: both airlines and travellers, and would need to align costs and prices. Do I really need to praise market economies here?

In my opinion, that’s what the Spanish owner Ferrovial is looking forward to. They had to incur in huge debt to buy BAA at a higher price than expected. And right now they are bound both by harsh requirements and fixed tariffs. In a free market they’d be competing against other airports bearing a much lower debt. And they’d have the first say on which airports to sell. If I was them, I’d pressure for that using public opinion, a very important stakeholder in this sector.

And when social brokers, namely the media, align with public opinion pressuring for change, the government complies.


4 thoughts on “Blaming Heathrow (and splicing it up)

  1. I agree with you. Blaming is very easy, and people sometimes forget that a particular outcome (a crowded and outdated airport) is not the sole responsability of the current managament.

    One interesting thing that very people have studied are the effects of the NIMBY (not in my backyard) on social welfare. How many improvements or new works have been forced to be postponed or phased out due to environmental or pseudoenvironmental protests? One prominent journalist told me last month that a study like this would be extremely interesting to show that blaming is not cost-free in the long run.

  2. I love the NIMBY concept, David. You can see it working in Barcelona’s airport. The closest neighbours, those in Gava Mar, bought expensive houses close to the airport and close to the sea, but now they oppose further enlargements. People want to be able to travel easily, but they don’t want to hear the noises while they don’t travel. And almost half of the inhabitants started living there after the enlargement was approved. Many of them are pilots or air controllers, so they live from the airline/airport sector, but they don’t want the noise, just the money.

    Best regards

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