City of London Economic Research

London’s air connectivity: the debate continues

As the on-going debate into increasing UK aviation capacity continued last week there were several key announcements, which will be considered by the Davies Commission, set up in September 2012 to chair the debate and come up with recommendations on how best to expand airport capacity and support UK economic growth. The Commission is gathering evidence about current and future airport capacity and all the factors that affect this and has asked for submissions on proposals for future capacity.

• Heathrow submitted their plans for expansion – this includes a new runway by 2029 in order to operate 740,000 flights a year - up from the current limit of 480,000.
• The Mayor of London, Boris Johnson, announced three proposals to increase UK aviation capacity: a new hub airport in either the Isle of Grain or the Thames Estuary and also the expansion of Stansted airport.  
• Gatwick submitted its proposals for a second runway to act as part of a constellation of three major airports surrounding London.

The Davies Commission expects to report on existing capacity in Dec 2013, including recommendations for immediate actions over the next five years to improve existing capacity, and to report on new capacity following the 2015 elections. Whichever option they choose to take forward, the business City has an interest: air services continue to be of critical importance to the functioning of the City economy. The City is increasingly global in its operations, with a particular need for improved air links with expanding economies such as Latin America. This drives a need for additional airport capacity to ensure that London can continue to offer the high level of connectivity with the rest of the world that is critical for future economic success.

The City of London has commissioned and published several reports on aviation – the 2008 report 'Aviation services and the City' which concluded that there was business support for a third runway at Heathrow. An update to this piece in 2011 looked at the implications of changes in policy since the last study, notably the abandonment of plans for a third runway at Heathrow and a second runway at Stansted.

Our latest research in 2012, included a report on London’s connectivity to emerging and growth markets - examining London’s connectivity by air to twenty two growth and emerging markets, (shown in this infographic highlighting the links) and compared this provision with four other primary European air travel hubs (Amsterdam, Frankfurt, Madrid and Paris) and with another growing global hub, Dubai.  And a second piece, concentrated on the importance of London having hub capacity in maintaining connectivity by air to key business markets, focusing on the extent to which hub connecting traffic underpins the provision of services in London to twenty key business centres.

Our analysis provides evidence that hubbing is a factor in securing a wider route network than would otherwise be possible. It further suggests that the conditions for some airlines to enhance the range and frequency of connections are to a large extent dependent on being able to retain a range of feeder connections at a hub and this has been significant in supporting the development of services to emerging business centres in India and Latin America. Feeder traffic from the UK, Europe, US and the rest of the world is critical to sustaining these services.

The debate on London’s airport capacity will continue up to and beyond the reporting of the Davies Commission, but it will be critical to find long-term solutions for air capacity that will maintain London’s and the UK’s  competitive position.

The reports mentioned in the post above are all available to download from the City of London website:

• ‘London’s air connectivity, 2012 'the importance to London of having world class aviation hubbing capacity’ and 'emerging and growth markets'
• Aviation services and the City, 2011 update
• Aviation services and the City, 2008

London's Air Connectivity to Emerging and Growth Markets

 

Click on the image to enlarge the infographic

Based on a report produced for the City of London by York Aviation, London's Air Connectivity, Emerging and Growth Markets, this infographic shows the connectivity that exists between London and the South East and a number of key emerging and growing economic centres worldwide, via weekly direct flights. 

The full report, available on the link above, compares the region's connectivity with four other major European hubs for air travel, Amsterdam, Frankfurt, Madrid and Paris, a and with Dubai, a growing global hub.

Green Spaces: The Benefits for London

London is one of the greenest major cities in the world, with over 35,000 acres of public space. The City of London is proud to be the custodian of almost 11,000 acres of green space in and around London, ranging from Hampstead Heath and Epping Forest to the small gardens of the Square Mile.

In this video blog, David Bentley, from the City of London's Open Spaces department, talks about some of the environmental, health, social and economic benefits that the capital's woodlands, parks and gardens provide, highlighted by a new report Green Spaces: The Benefits for London.

 

The report Green Spaces: The Benefits for London was prepared for the City of London by BOP consulting and is available to download from the City of London's website.

Growing the Social Investment Market: the Landscape and Economic Impact



By Katie Hill, Social Investment Advisor, City of London

Is there room for another report on social investment? Why bother with this one? Does it really tell us anything new?

Quite simply, the answer to these questions is ‘Yes’.  A new research report, Growing the Social Investment Market: the Landscape and Economic Impact will satisfy the appetite of the ‘data-seekers’.  It provides new,  primary data on the size of the UK social investment market over the financial year 2011/12, telling  us the market has grown by almost a quarter in one year from £165 million to £202 million, through 765 deals. Breaching the £200 million mark is a significant milestone - and that is before Big Society Capital commitments have come on stream.

The report also gives us the breakdown of the 765 deals in terms of size, type of product, sector and region into which the investments were made.  It identifies significant areas of concentration of product type and lender in the marketplace.  Savvy social investment professionals and / or report readers will not be surprised to find that 90% of these deals are providing secured lending; only £10 million of investment out of the £202 million was made on an unsecured basis.  And then lenders are heavily concentrated too:   four large social banks account for 82% of all social investment in 2011/12.

 How is the social investment market contributing to the UK economy?

And there’s more data too, as for the first time, the research examines the overall contribution of the social investment market to the UK economy, both nationally and regionally.   At a gross level, over the lifetime of their finance period, the 765 investments will result in the creation or safeguarding of 340 social ventures, 6,870 full time equivalent (FTE) jobs, and £58m in annual GVA contribution to the UK economy. Though, the net economic impact of the 765 investments is lower, creating or safeguarding over 210 ventures and close to 3,550 FTE jobs. 

This demonstrates a high displacement effect, one of the key explanatory factors of the difference between gross and net impact. Displacement measures ‘did you just replace a local competitor?’  If new jobs were being created the difference between gross and net would be less marked. This displacement effect suggests that social investment is improving the competitive advantages of social organisations to secure contracts and win over customers.  It is not seemingly as effective yet at opening up new markets for social goods and services.

The infographic below shows some of the key stats mentioned - click on the image to enlarge it.

What are the bottlenecks in the social investment market?

The report helps highlight some key bottlenecks in the social investment market:  Social Investment Finance Intermediaries (SIFIs) argue that the use of grants continues to be distortive and reduces the number of good investment propositions reaching them. This tangled issue of when and how to use grants as a stepping stone or as a ‘lining’ to a deal and how to allocate different types of capital with maximum efficiency, requires further in depth case-based examination. Acumen’s report ‘From Blueprint to Scale’ and ‘Capital Curve for a better world’  by Matthew Bishop and Michael Green offer  useful thinking on this issue.

The application of grant finance may also affect the second reported ‘bottleneck’:  namely, that SIFIs see a limited number of high quality investment propositions.  In the last year, incubators, investment readiness programmes and mentoring and support programmes have been put in place to help tackle this.  If these are effective at producing investible propositions, we then need to ensure that the concentration of both lending and lender is not a bottleneck to providing these organisations with the type of capital they require.

A key question arising from this is ‘does this pattern of investment meet the needs of a growing sector’?  The counterfactual case is always difficult to make, but it is worth considering what might have been if the active SIFI base was wider, if the investment offers were more attractive, if the lending terms were more varied.   We know from other research of the dire need for higher risk unsecured finance.  

Room for more?

Clearly, there is plenty to dig into in this report.  We are now better informed about what has been working and where new investors can play a role.  There is real value in tracking this information to identify progress.   And that is not all:  the report does not attempt to measure the social impact of these investments, the core component of what the sector is about.    We can be sure that the report understates the true benefits of the 765 social investments.  

The report was co-commissioned by the City of London, Big Lottery Fund, Big Society Capital, and Her Majesty’s Government, and all the commissioners would like to thank the participants who engaged in this research to provide us with the clearer picture of the landscape and economic impacts of social investment. 

The report was prepared for the City of London by ICF GHK in association with BMG Research. 

The full report is available to download for free from the City of London website.