BMI View : In line with our positive outl ook for the UK's airport sector which is supported by large scale investments in a number of airports, Birmingham International Airport has detailed plans to expand its capacity to rival that of Heathrow . This would see it become the UK's second long-haul hub and would continue our positive view into the long-term. How ever, downside risks are pertinent and includ e uncertainty over the future of London's airport expansions and a reliance on HS2 . This put s the Birmingham project on an uncertain footing from the offset.
In a new angle to the debate on the UK's future airport policy, t o coincide with the potential construction o f HS2, Birmingham Airport is developing a pla n to expand its capacity to rival that of Heathrow. A fifty-year expansion plan including a second runway and a new terminal has be en submitted to the Davies Commission, which is currently working to examine the need for additional UK airport capacity to then recommend to the government how this can be met. The move by Birmingham Airport comes after a new option for Heathrow's expansion was floated last week, in which the airport's third runway would now be built to the south-west, rather than the north of the existing runways in an aim to mitigate the noise impact from increased air traffic.
Creating a second major aviation hub at Birmingham would be in line with previous comments made by the Davies Commission that state that the UK could support two airport hubs, rather than Heathrow's assertion that it was the realistically the only hub option. In 2012, Heathrow processed 69.4mn passengers, just below the planned capacity of Birmingham's expanded airport which would be able to handle 70mn passengers a year.
|Heathrow And South East Dominate|
|Top 10 UK Airports By Passenger Numbers, 2012|
Airport Investment Takes Off
If the Birmingham plan was approved, it would add upside to our long-term outlook for the UK's airport sector. Already a source for growth for the construction industry in the UK, new infrastructure and a second runway at Birmingham would see this trend continue beyond our forecast period ( see ' Heathrow Investment Drives Upward Revision To Airport Forecast' 14 February) . Currently we forecast that in 2013 the UK's airport sector will grow in real terms by 10.3%.
Other major airport developments providing growth include:
Heathrow's announcement of GBP3bn investment over the 2014-2019, including the completion of Terminal 2 - which is due to open in 2014 - and further extensions to the terminal. Funding will also go towards the development of a new integrated baggage system, new taxiways and stands and providing better links between Terminal 2 and 3 and to and from the airport, with funding going towards Crossrail.
Edinburgh's GBP40mn terminal expansion project is part of a proposed GBP100mn investment at the airport
Manchester Airport is seeing a GBP650mn development of a major new commercial location - including offices, hotels, manufacturing
Vinci has begun work on Gatwick's GBP183.9mn redevelopment of its Pier 1, part of a GBP1.2bn redevelopment of the airport
This impressive rate subsequently trends downwards up to 2022 by which point we currently forecast a minor contraction in the sector as major investment periods currently being undertaken come to an end. However, if Birmingham's desire to become a second aviation hub is taken seriously by the Davies Commission, then we will look to upgrading our long-term outlook to reflect the large-scale investment needed to bring the airport up to and beyond He athrow's capacity.
|Birmingham To Continue Sector Outperformance?|
|UK Infrastructure Industry Value (GBPbn), Real Growth and Airport Sector Real Growth (% year-on-year)|
Risks To The Downside
Howeve r, there are several hurdles in front of Birmingham's expansion, which it may struggle to overcome . Perhaps largest of all is enticing major airlines to switch their operations from internationally known Heathrow to Birmingham. On the subject, British Airways stated "British Airways does not believe that regional airports can ever be an alternative to provision of effective hub airport capacity serving London and the South East", implying that they would rather see an expansion Heathrow or new airport built in the London area. Similarly, Virgin has also implied that it is not convinced by Birmingham as an alternative, saying Heathrow and Gatwick are "full at peak times because passengers want to fly from those airports."
Secondly, and linked to the idea of passengers wanting access to London, is that the project is reliant on HS2 being constructed. Whilst we are positive on the HS2 project, we expect major delays due to the opposition to the route, environmental impact and cost, and thus Birmingham cannot be guarantee that it will be able to offer people quick connections to London. Finally, the Davies Commission is not due to make its recommendations to the government until 2015 and there are numerous other solutions to the UK's aviation needs on the table with high-profile backers. Birmingham will have to beat off tough competition, particularly from other London airports looking to expand.