Oxera asked to evaluate whether a new hub airport would be commercially viable

Oxera asked to evaluate whether a new hub airport would be commercially viable

The questions for the aviation inquiry have been designed purely to help the Committee assess the commercial viability of a new hub airport in the UK by asking whether commercial owners of a new airport would be able to make adequate returns to obtain finance.

The project did not analyse whether government support for such an airport would offer good value for money and does not attempt to provide a full social analysis.

The analysis developed by Oxera includes:

  • scenarios taken from primary sources—addressing demand, airport and surface access construction costs, and landing charges. These are used as objective inputs to model the expected cash flows of a new hub airport;
  • a range of designs for a new hub airport, covering aspects such as the number of runways and policy options towards existing airports.

Based on this analysis, Oxera concludes that, under most scenarios, expected revenues would be less than the expected costs and that a new hub airport would not be commercially viable. The report highlights that for construction of a new hub airport to go ahead, substantial taxpayer support is likely to be needed.

Although this report makes reference to a number of specific hub airport proposals, it has focused only on the overall rationale for the concept of a new hub and not the detail for any or each of these proposals. This means that estimates for both revenues and costs have been calibrated using broad conceptual numbers, rather than proposal-specific estimates. It is important therefore that this analysis of a new hub is considered within the context of wider UK aviation policy, in line with the Committee’s inquiry, and is not considered on a stand-alone basis.

View the full report

Posted: 24/01/2013