Learning from London

The U.K. established an Airports Commission to review the cases for expanding airport capacity in London. In the summer of 2015 the Commission issued a Final Report recommending a third runway at Heathrow.

The commissioners carefully reviewed issues ranging from carbon emissions and noise constraint to local community engagement and how additional employees would arrive to work. What follows is a highlight of some of its insights applied to the case for the planned extra runway at Rome’s Fiumicino Airport.

First, transportation connectivity is essential for national productivity. Not least due to boosting competition. The U.K. gains in multiple ways from Heathrow’s status as a mega-hub, as it allows rapid and cost-efficient movement of financiers, business executives, academics and national and international civil servants, not to mention the robust number of foreigners living in the city and surrounding suburbs.

As the Final Report says of the technological innovation and globalization underpinning today’s world: “Lifestyles have changed, with many people taking advantage of European and wider integration to live and work outside their country of origin.”

Italy has been a laggard on this front. Inward migration is relatively unskilled, while homegrown graduates leave, often for London. This reduces exposure to innovation and reduces awareness of the economic challenges facing a country that is not short of savings and entrepreneurial people but has been struggling for the past two decades due to what might be called a marginal position in the worldwide networks that all evidence shows stokes productivity and boosts competitiveness in general.

Italy’s main airports in Milan and Rome have been a case in point, as official ambivalence over which should have hub status ended up harming both Malpensa and Fiumicino, not to mention crippling the former national flagship carrier Alitalia.

However, making virtue of necessity is an iron law, and in many ways Fiumicino’s legacy issues may offer a teachable moment allowing the airport to thrive. For example, Alitalia is less dominant in Rome than is the case at other national hubs. This could be an asset as the airport now has a track record of dealing with multiple players, a trend likely to increase with expansion.

It’s worth noting that Ryanair is Italy’s largest airline by passengers, a unique scenario in Europe. Also, while actual traffic in Rome is underdeveloped, the city was second only to Amsterdam in the number of Europe-bound destinations served in the summer of 2015.

Rome serves far fewer extra-European destinations, serving 51 in the summer of 2015 compared to around twice as many at Heathrow, Paris CDG, Frankfurt and Istanbul. However, the ratio of passengers per destination for Fiumicino is much lower than its rivals, underscoring how open for business Rome is and pointing to the growth potential of becoming a full-fledged hub.

Environmental issues, including sociological impacts such as noise and neighbourhoods, are a key and essential point in the controversy over Heathrow’s expansion. The Final Report emphasizes this is inevitable and natural, adding: “Airport expansion and mitigation of its local impacts go hand in hand.”

That evidently means the former can and should fund the latter. The Report urges allocating a share of the additional income from the third Heathrow runway in a new way, one designed as the result of intensive engagement with the local community.

It’s worth noting the counterfactual: The lack of the former – the scenario of no expansion – will also have spillover effects elsewhere, be it in the form of reduced mobility, greater traffic at other regional airports that also have adjacent neighborhoods, or an array of impacts stemming from higher prices and less international travel.

Fiumicino’s plan has been studied in light of local objections, and the airport operator has currently opted for a variant that will require taking 289 hectares, about one-fourth of the space envisioned in the original 2009 plan. Likewise, the decision has been taken that the larger EUR12 billion investment plan will “rebuild the airport on top of itself,” a decision contrasting with those taken in Paris and London where old terminals were abandoned and new ones built. The operator’s explicit rationale for this is to minimize the impact on the territory.

As this form of construction may plausibly impede the airport from operating at its optimal efficiency load, the case for developing excess capacity ahead of time is arguably strengthened.

A word here on ground transport is appropriate. The Fiumicino plan includes a ground rapid transit system linking all terminals with the longer-term economy parking area, a scheme designed to serve not only passengers but also airport employees.

Of greater importance on a commercial level, Aeroporti di Roma is allying with Trenitalia, the state railway, to launch a high-speed train link connecting the airport to Florence, Bologna and Venice. Integration of air and rail will, if executed smoothly and extended to include single-ticket options, create a much larger catchment area for Fiumicino, making it a more attractive destination for long-haul routes serving both business travellers and tourists. It currently takes four hours by rail from Venice to Rome, offering a viable alternative to the current trend of northeastern Italians routing through Frankfurt or Paris’ Charles de Gaulle for intercontinental flights. This could significantly increase the currently somewhat low share of flights beyond Italy and Europe originating in Rome’s airports – Fiumicino and Ciampino – which was around 17 percent.

As fuel and emissions concerns are likely to intensify in the future, it is worth pointing out again that flying from Venice to Shanghai is 6,000 miles compared to the 6,800 flight miles of the same itinerary via Abu Dhabi.

Hub-and-spoke model. This is the network formation airlines currently prefer, and the industry’s various alliances tend to develop synergies on this basis. The chart below underscores how powerful the industry standard is.

Alitalia’s historical wavering between Fiumicino and Milan Malpensa airports hindered the rollout of this model for the carrier, which now has Etihad as a new partner – which may prove significant as major European airports such as Heathrow, Paris CDG and Frankurt are all facing strong challenges from Middle Eastern carriers and their hubs.

The map below shows that Europe remains top of the pack when it comes to inter-regiona transfer passenger flows, but also strongly signals the potential of the Middle East.

Resilience. Heathrow has for years operated close to its capacity limits, which has reduced its ability to recover from unexpected disruptions – weather or airline behaviour. FCO has a chance to avoid this problem with an extra runway, sending a clear signal to longer-term partners, notably Asian airlines.

Excess capacity typically tends to foster improvements in on-time arrival performance, as was demonstrated by a 14 percent jump in timeliness at Frankfurt Airport after the debut of its fourth runway. At the same time, pre-empting capacity constraints tends to favour the entry of new players. While that may not benefit national flagship franchises, it does tend to keep prices lower even on long-haul fares.

This is a notable and important benefit for Italians, not least as many educated youth will in the future be working further from their homes, blurring the distinction between business and leisure travel.

Other considerations. The UK’s Final Report is several hundred pages long and consists of detailed analysis of the carbon impact of several airport expansion plans, as well as a granular map of the impact of noise on the surrounding areas. The Report benefited from hundreds of comments from citizens and businesses. It would be salutary if a similar report were crafted for the Fiumicino plan and made widely available.

That said, the situations in Rome and London are quite different. There is only one major airport in Rome, whereas London has several, with two separate expansion plans being backed for Heathrow and another for Gatwick Airport. On the other hand, the Final Report concluded – on the basis of a social and economic analysis referring to national strategy and benefits - that some kind of expansion ought to occur, thus squelching the legions of opponents to any such developments.

If an independent Italian expert commission were to take up the Fiumicino dossier, it ought to be able to produce an analysis of a larger Rome hub’s impact on the country as a whole, including its impact on local airports and other transportation networks. Such an analysis could, in theory, even lead to the suggestion of specific commitments the airport operator should make.

At the same time, the Report would presumably highlight the importance of the relation between capacity constraints, air fares, and airport landing taxes and fees – which are of huge importance to the transfer market that any hub must serve.

Lastly, the UK’s Final Report addressed the ultimate counterfactual by estimating the potential costs of London failing to address its airport capacity constraints. The clocked in at between £30 billion and £45 billion over a 60-year time frame, with more than half the costs being shouldered by users and providers of airport infrastructure and the rest by the economy at large. Putting such propositions to public debate would be beneficial in terms of definining distributional rights and duties and might enhance support for the project and lead to constructive improvements in its implementation.