New Runway Offers Freight Potential, While US Investigates ‘Collusion’

Jul 6 2015, 11:44 AM6 min read

The airline industry is a popular news topic, appearing on two fronts this past week. The decision on a new runway for London got people talking about airfreight, while in the US, an investigation was announced by the Department of Justice into alleged collusion.

New Runway Plans

Last week, a UK Government commission selected Heathrow as the preferred location for a new runway to be built in London. Following the publishing of the report, UK Prime Minister, David Cameron, confirmed that a final decision would be made by the end of the year.

The plans for Heathrow, already the busiest passenger airport in Europe and third busiest in the world, appear to have beaten competition from London Gatwick and a proposal for a brand new airport in the Thames estuary.

While it appears that the debate will rage on until the final decision is made at the end of the year, business leaders and UK organisations have welcomed the decision. With Heathrow currently operating at 98 per cent capacity, many think that this is directly impacting business and freight.

‘Importance of air freight’

The freight industry believes that additional runway capacity at Heathrow is required in order to service new markets in Asia, South America and the Indian sub-continent.

The Chief Executive of the UK’s Freight Transport Association (FTA), David Wells, stated that, “80% of freight is carried in the holds of scheduled passenger aircraft using Heathrow Airport.”

“Whereas passengers could be persuaded to use a different airport, the diminution of Heathrow as an international air cargo hub favours neither the country nor the economy,” Wells concluded.

Future Exports

The commission report highlighted future exports for the UK as a reason for their decision. The report stated, “By 2030 advanced manufacturing industries such as pharmaceuticals or chemicals, whose components and products are predominately moved by air, are expected to be among the top five UK export markets by their share of value.”

Sir Howard Davies, Chairman of the Airports Commission, who compiled the report, went on to say that the Heathrow option provided the “greatest benefits for business passengers, freight operators and the wider economy”.

While it remains to be seen if the UK Government will go along with the Commission recommendation, it does appear that business might benefit from a new runway at Heathrow.

Collusion Investigation

Over in US, the industry is in the news for less positive reasons, with the Department of Justice (DoJ) announcing a new investigation into alleged collusion between some of America’s biggest airlines.

United Airlines, Delta Air Lines, American Airlines and Southwest Airlines have all confirmed that they are part of the investigation, which will focus on whether the airlines have been coordinating to keep tickets available at a steady number, artificially increasing demand and driving up prices.

The four airlines account for 85 per cent of the domestic routes across America, partly due to two high-profile mergers in the past year. The investigation also comes at a time when airlines are posting huge profits due to the falling oil prices.

Questionable Outcomes

However, many commentators believe that the investigation will not produce outcomes that will be of benefit to consumers. For one, it is hard to prove that airlines are actually colluding to keep availability low, as with better technology, information on both capacity and pricing can be found easily and immediately.

There is also an argument to say that it would be just as effective to let markets sort out collusive behaviour on their own. There are other ways to ‘collude’ beyond pricing, but ultimately, if inefficiencies appear in the market, new competitors will emerge or consumers will look elsewhere to satisfy their needs.

Whatever the final outcome of the investigation, it looks as though there will be greater scrutiny on the airlines in the coming months. While it may not lower prices in time for the busy summer holiday period, there is a chance it may push the airlines to be more transparent and act in a favourable way for consumers.

Do you live near Heathrow or commute through there regularly? What do you make of the decision for a third runway? Do you think the DoJ investigation will make any impact? Let Procurious know what you think.

While you think about that summer sunshine, have a read through the headlines from the procurement and supply chain world this week.

BP agrees to $18.7 Billion payout for deadly 2010 oil spill

BP agreed on Thursday to pay $18.7 billion for damages caused by its oil rig explosion in the Gulf of Mexico in 2010, an accident that resulted in the deaths of 11 people and the largest marine oil spill in history.
The settlement covers lawsuits filed by parties including the U.S. government, five U.S. states that were affected by the spill, and several hundred local government organisations. It also includes a civil penalty of $5.5 billion under the U.S. Clean Water Act.
The settlement, which comes in addition to the hefty sums that BP has already had to pay in legal and clean-up fees over the last few years, will be paid over 18 years and is expected to end the majority of BP’s litigation wars over the accident, though the company still faces shareholder lawsuits and some outstanding costs from a 2012 class action settlement.
With this new settlement, BP’s total bill for the spill climbs to $53.8 billion—a number that exceeds the company’s profits in the last three years.
Carl-Henric Svanberg, BP’s chairman, said in a statement that the agreement offers “a path to closure” for BP and the Gulf. “Five years ago we committed to restore the Gulf economy and environment and we have worked ever since to deliver on that promise,” he said.