Qualitative Scenarios Jagoda Egeland Strategy & Policy Manager Airports Commission Briefing London, 17 March 2014 1

Assessment of Need: How much and what kind of aviation capacity in the future? “The commission will examine the scale and timing of any requirement for additional capacity to maintain the UK’s position as Europe’s most important aviation hub; and it will identify and evaluate how any need for additional capacity should be met in the short, medium and long term.” Terms of Reference 2

Aviation demand is likely to increase significantly between now and 2050 UK aviation demand, 1980-2050 3

In the “Core Forecast” world, major SE airports are full by 2041

It is clear that the world has moved on significantly since the UK government last considered airport capacity in the 2003 White Paper… … and it is still changing… Global Economy and Society – the developed world is now on a slower-than-before-the-crisis growth path; the centre of economic gravity is moving eastwards Global Politics – environmental and climate change issues are becoming the focus on the global policy agenda; emerging world is taking more active part in global politics Fuels and Technology – the world keeps on being more dependent on oil, but credible alternatives are being developed … so in Phase 1 of our work we also considered the likely long-term impacts of these changes on airports, airlines and passengers. 5

We organised a workshop for a selection of experts from our Expert Panel Dr Andrew Kempton; Chief Noise Specialist, Rolls-Royce Professor Henry Overman; Professor of Economic Geography, London School of Economics Mr David Starkie; Senior Associate, Case Associates Professor Callum Thomas; Professor of Sustainable Aviation, Manchester Metropolitan Dr Andrew Sentance, Senior Economic Adviser, PwC Michael Burns, Head of Aviation, PwC Experts had a discussion about the most important drivers of change and their likely impacts on the aviation sector. 6

The crisis has increased the growth gap between emerging and advanced economies Annual Change in GDP (3-yr rolling average) World, Emerging Markets, and Advanced Economies Source: IMF WEO 7

Asia-Pacific is growing in economic importance… Source: IMF WEO 8

…as a result the Economic Centre of Gravity is moving eastwards… 9

…and an unprecedented proportion of megacities is growing in Asia Source: PwC 10

Rising price of oil due to growing world population and economic growth… Over the last decade, the world has experienced rising energy prices, with world population rising above 7 billion, and demand supported by strong growth in emerging and developing countries New sources of energy, such as shale gas, and various low-carbon technologies may ease some of these upward pressure or even reverse the trend 11

…have been driving aircraft fuel efficiency measures for a long time… Historical improvements in aircraft fuel efficiency 12

…but it is unclear there will be significant fuel-efficiency improvements over the years to come Source: CNN 13

The aviation industry is taking voluntary action to reduce emissions… Sustainable Aviation (an alliance of UK airlines, airports, aircraft manufacturers and air navigation service providers) has set out a CO2 Road-Map based on improvements in air traffic management, greater fuel efficiency, use of sustainable fuels, and carbon trading The International Air Transport Association (IATA), which represents about 240 airlines around the world, has adopted a set of targets to reduce net aviation emissions. These include a cap on aviation CO2 emissions from 2020, an average improvement in fuel efficiency of 1.5% per year from 2009 to 2020, and a reduction in CO2 emissions of 50% by 2050, relative to 2005 levels …but can they deliver? 14

Will the rise of Asian consumer change the face of the aviation industry… 15

…by altering the global route network and challenging the dominance of the ‘old’ carriers? 16

Will the global price of oil continue to rise? Source: The Economist 17

Will the low-cost carrier (LCC) model crowd out other carriers from the short-haul, and possibly other, markets? Source: SABRE; PwC Analysis. 18

Will aircraft become greener and quieter? YES NO 19

During the workshop, five main drivers of the aviation sector were identified 20

Four scenarios that emerged… 21

…were used to inform sensitivity tests of our demand model Even in scenario D, all London airports except for Stansted are full by 2040 22

The balance of capacity needed in each scenario is different Conclusions The case for capacity expansion in London and the South East stands up in all the scenarios modelled The balance of capacity needed in each scenario is different Scenarios A and B point towards hub capacity, whereas in scenarios C and D prioritising non-hub capacity would appear more important 23

Qualitative Scenarios Jagoda Egeland Strategy & Policy Manager Airports Commission Briefing London, 17 March 2014 24