For our daily exercise I sometimes take the kids to a grassy hillside near our house. It’s the other side of the valley from Luton Airport, and usually there is the regular roar of planes taking off and landing. Recently it has been very quiet. The airport is closed to passenger flights, with occasional cargo planes the only ones in the sky.
It’s been nice to enjoy the quiet, but it’s hard to escape the implications of the shutdown. That silence represents a catastrophe for Luton’s economy. The Centre for Cities has assessed local economies across Britain’s towns and cities. The place that is most vulnerable to the coronavirus shutdown is Crawley, where half the town’s employment is linked to Gatwick Airport. In second place – the number two most vulnerable place in the country – is Luton. With so many jobs in aviation and the car industry, “over 40 per cent of jobs are classed as vulnerable.”
Luton Airport is the biggest employer in the town. Having so many eggs in the aviation basket has always been a vulnerability. There was a wake-up call during the financial crisis, another when the famously unpronounceable Eyjafjallajokull volcano suspended flights across Europe. But the town has doubled down on the airport. It handles almost twice the number of passengers today than it did when we moved here a decade ago. And it hopes to double again, its 2020-2050 vision aspiring to 36-39 million passengers per year.
Since the council owns the airport, this has been almost universally viewed as a strength in local political circles. To paraphrase what our former MP told me, the town has a speciality and we should press into that. Or as the council leader put it, “We’re not going to not grow the airport. We’re not going to stop economic growth.”
Today the economic growth has stopped. The council has a potential £35 million hole in its budget from lost revenue. And the expansion plans may not survive the pause.
The case for expanding the airport is based on the assumption of – I quote from the Outline Needs Case document from the recent consultation – “very rapid growth in demand for air travel, associated with increased prosperity and globalisation of the economy.” Here’s the Department for Transport’s air passenger forecast:
It’s not a like for like comparison, as this shows revenues for global aviation, but here is IATA’s latest graph showing what has happened to aviation in 2020:
The aviation industry is in freefall at the moment, with flight numbers running at 10% of their usual numbers in Europe. The question is how long they will remain that way, and how far the ripples of consequences spread. And to answer that question, we have to look at several other factors.
When will aviation pick up again? Not while lockdown continues, and not immediately afterwards. It’s being reported that flights will resume in stages from May and June. What we don’t know is whether people will rush out on holiday, or whether the health crisis has quashed demand. When polled, many people said they would avoid flying for six months to a year. Then there is business travel – how many businesses have adjusted to video calls and plan to cut costs on travel in the coming months? IATA assume flying will pick up towards the end of the year, but that revenues will be half what they were last year.
A recession is now inevitable. What effect will that have on passenger numbers? IATA estimate that recession on its own would knock 8% off revenue in Q3 of this year. If we look back at the last recession, passenger numbers at Luton fell slightly more than that, and this dip could well be worse.
Can the airlines survive that shortfall? Not all of them. They are burning through their reserves at a rate of knots, paying staff and maintaining planes and landing slots that they can’t use. I fully expect the government to bail them out, but some won’t be able to hold out. Even if they survive, they may downsize to cut costs, laying off staff or mothballing planes.
Luton Airport’s expansion plans rest on the assumption that demand will increase, which means expanding airlines, flights and fleets. But in order to protect its bottom line, Luton-based Easyjet has pushed back an order for new planes. Airbus, in turn, cancelled plans for a new factory. At the weekend Warren Buffett dumped all his company’s investments in aviation. These are the kinds of outward ripples that will make it hard to restart growth in aviation, without which airport expansion makes no sense.
In short, the coronavirus has left Luton Airport without a business plan to support its second terminal. A lot of planning has already been done, a lot of money spent on consultations and scoping. Do we write that off? How much more should we throw at it? I don’t know, and I don’t envy those that need to make the decision. But if feels to me like Luton’s airport expansion is like Wile Coyote in the road-runner cartoon – running in the air, and about to notice that he’s gone off the cliff.
The truth is of course that it shouldn’t have been happening anyway. No airport should be expanding at a time of climate crisis. Other regions have recognised this and voted against airport expansion, such as Bristol and Stansted, which proves that it’s not as inevitable as our local politicians claim. We should cancel plans now, be grateful for the dividend that the airport delivers as it is, and strengthen our local economy by diversifying away from aviation.