An analysis of the positive and negative economic impacts of Heathrow Airport - Essay Example

?The Positive and Negative Economic Impacts of London Heathrow Airport Executive summary This present paper is report that mainly sought to identify the economic impact of the London Heathrow Airport, which was classified in this study as a tourism venue/ organization because of the fact that it is a location whereby visitors or tourists enter and depart London or the country from. The discussion of the economic impacts was split into two categories of which the first discussion focuses on the positive economic impacts of the London Heathrow Airport while the second part focused on the negative economic impacts. The findings from the study showed that the main direct economic impact of the airport is that it acts as a major source of tax revenue to London local authorities and Her Majesty Revenue and Customs. The indirect positive impact of the airport is that it provides a ready market for other businesses enterprises that are located within the airport or in adjacent areas. The direct negative positive impact of the airport is that it facilitates that development of artificial inflation while the indirect negative impact is that it reduces the suitability of London as international center for doing business. Table of Contents 1.0 Introduction 3 2.0 The positive economic impacts of the London Heathrow Airport 4 2.1 Direct positive economic impacts 4 2.2 Indirect positive economic impacts 6 3.0 The negative economic impacts of the London Heathrow Airport 7 3.1 Direct negative economic impacts 8 3.2 Indirect negative economic impacts 9 4.0 Conclusions 10 References 11 Inkson, C. and Minnaert, L. 2012. Tourism Management: An Introduction. London, UK: Sage Publications 12 1.0 Introduction This present paper is a report that is entirely focused on analyzing a hospitality venue or organization and the economic impact of the venue/ organization. For this particular, report, the London’s Heathrow Airport was selected as the case study and therefore, this report seeks to provide an in-depth analysis of the economic impact of the airport, both the positive and the negative. It is important to note that the discussion of the economic impact would not be limited to the tourism perspective but rather the discussion will cover the general economy of the United Kingdom as well as the local economy of the City of London. Therefore, the report will have two major sections of which the first will detail on the positive economic impact of the London Heathrow Airport while the Second part will cover the negative impacts. However, briefly before the start, the report will provide brief background information of the chosen tourism venue/ organization. To begin with, Graham (2008) in his studies described an airport as a location where aircrafts of varying sizes and types take off and land thereby acting as a stage for alighting and boarding aircrafts for passengers as well as the aircraft crew. Tribe (2012) wrote that an airport is considered as a tourism venue/ organization because it is the first and/ or last place that visitors pass through at a foreign destination. The London Heathrow Airport is located in the London Borough of Hillingdon, which is in the western side of London. Inkson and Minnaert (2012) in their writings referred to the London Heathrow Airport as the busiest airport in the United Kingdom as well as the entire Europe and the third busiest in the world in terms of the passenger traffic in the airport. Hoare (1971) added that the airport is owned and managed by the Heathrow Airport Holdings that also owns three other airports in the United Kingdom. The airport acts as the primary hub for British Airways and the primary operating location for the Virgin Atlantic. In order to handle all the passenger traffics and the movements, the Airport has 5 terminals each serving aircrafts bound to or arriving from different routes. Among the top busiest international routes to and from the airport is led by New York, followed by Dubai, Dublin, Frankfurt, and Amsterdam. The busiest domestic routes include the Edinburgh, Glasgow-International, and Manchester. In the past year, the airport served over seventy million passengers, handled approximately 1.4 million cargos, and the aircrafts movements totaled to 475,176 (Regeneris Consulting, 2013). 2.0 The positive economic impacts of the London Heathrow Airport 2.1 Direct positive economic impacts In the writings by Graham (2008), he stated that airports have a direct positive effects and indirect positive effects to the economy of the surrounding region and the entire country. One of the direct positive effects of the London Heathrow airport to the local economy of the state of England as well as the entire UK is the fact that it provides employment opportunities to approximately 76,600 people (Regeneris Consulting, 2013). Through the provision of this job opportunities, the airport accords purchasing power to its employees who in turn create demand for different goods and services both within and outside London and whilst satisfying the demand from the airport employees, businesses within the country generate sales revenue, which further spirals up the economy. The economic activities that are attributed to the earnings of the employees contribute to the economic development of the city of London and the UK in general. The other direct economic impact of the London Heathrow Airport is its tax remittances to the city of London as well as to the office of Her Majesty’s Revenue and Customs. In this regard, Philip (2009) cited that presently the London Heathrow Airport contributes 2.7% to London’s total Gross Value Added, which is the total value of goods and services that has been produced within London. Additionally, Philip (2009) stated that the exact estimated economic impact of the airport is GBP 9.93 billion, which is partly from the taxes that the company pays. These taxes are further used by the city London to finance its budget and this also entail creation of more job opportunities for the London residents. The share of taxes that goes to the central government of the UK is equally used to improve social amenities whilst creating additional job opportunities. Thirdly, the airport has a direct economic impact in regards to the business opportunities that it creates for other non-related companies. These business opportunities range from the shops that are available within the airport and the cab services that are offered to and from the airport. The airport has created numerous sections in nearly all the terminals where there are rental shops. This enables business organizations as well as individual entrepreneurs to provide a wide range of products and services to its people who are arriving as well as departing from the airport. By facilitating other businesses to operate within the airport, which has already been touted as the busiest in the UK as well as Europe, the airport contributes to the economic development of the region since these shops also offer additional employment opportunities to London residents. Moreover, the businesses also contribute to the local and national economic development from the taxes that it pays to the local authority as well as the office of the Her Majesty’s Revenue and Customs. 2.2 Indirect positive economic impacts In regards to the indirect economic impacts of the London Heathrow Airport, Alan (2005) stated that the Airport provides an entry and exist for imports and export of goods. This means that it enables businesses that mostly operate within the city of London or the entire region of England to transport goods to other places via air transport and it equally enables such businesses to receive goods from different parts of the country or from other countries via the airport. In this regard, Philip (2009) stated that the availability of transport infrastructure is a crucial resource that makes a place good for doing business. Therefore, it can be stated that the London Heathrow Airport has spruced up economic activities within the region, since business are able to sell their products to different regions within the country and to other parts of the world because there are in proximity to the third busiest airport in the world. Since the airport operates for 24 hours and every day of the week it means that London is able to maintain a 24 hour economy, which means that a lot of economic activities can take places within London, and hence making it much convenient location for conducting international business. The 24-hour economy of London enables the city to earn more revenue from the economic activities being carried out and it means that the city can provide more employment opportunities to its residents (Regeneris Consulting, 2013). In the previous section, this study had noted that the London Heathrow Airport handled over seventy million passengers in the past year. Therefore, based on the high passenger traffic it can be stated that the airport further create business opportunities not only for businesses that are located inside the airport but also for business around the city of London. For example, because of this high passenger traffic within the airport many hotels and lodgings have spruced up within the city in order to cater for those passengers who might be departing via the airport and those who have just arrived. The hotels and lodgings rely on the passengers using the airport, and this means that they record boom business or they become fully booked when flights are delayed or they have been cancelled for various reasons. Besides the hotels and lodgings, the other businesses that rely on the huge passenger traffic inside the London Heathrow Airport are the entertainment spots and dining places located within the areas surrounding the airport. These entertainment spots and dining places base their clientele on passengers who have arrived via the airport and those who are departing via the airport. Tribe (2012) stated that the airport also offers indirect benefits the economy of the local area as well as the country since it provides an entry point for tourists who earn various tourist sites within London such as the London Eye or other sites in the country. Additionally, the airport provides an entry point for businesspersons who wish to conduct their business within the city of London. In the report by CDM Smith (2012), it is stated that London is one of the world’s renowned international financial centers since it plays host to various international financial institutions as well as multinationals. This status has been facilitated by the London Heathrow Airport, which provides an easy access point to the region thereby making London conveniently located for doing international business. 3.0 The negative economic impacts of the London Heathrow Airport 3.1 Direct negative economic impacts Because of the huge passenger traffic within the London Heathrow Airport it mean that there are many people who provide a ready demand for goods and services within the airport and the surrounding areas. Because of this fact, Boon et al. (2008) lamented that business enterprises have taken advantage and they have imposed a price increase on their goods and/ or services since there is great demand. These high prices are equally reflected in various areas such as parking fees, cost of accommodation, and cost of food items as well as drinks, among others. The increased prices create a self-generated or artificial inflation mostly within the western side of London where the Heathrow Airport is located. This therefore, creates a scenario whereby the cost of living in the western side of London is abnormally high as compared to other areas within the country. The increased cost of living in this area has a further negative impact of diminishing the returns earned by businesses and even the salary earned by the employee who work within the surrounding area of the airport (CDM Smith. 2012). For example, high sale revenue generated by businesses within the airport and the adjacent areas diminish because of the high operating expenses that include high cost of transportation or high rental prices. Additionally, the spending power of employees working in the airport or in business enterprises that are adjacent to the airport is lower compared to the employee working in other regions where the cost of living is significantly lower or equal to the national average. The other directive negative economic impact of the London Heathrow Airport is that it provides access to various goods coming from foreign producers that could be priced much lower than goods that have been produced locally. The entry of such low cost products into the market reduces the competitiveness of local business thereby making it hard for them to sell their highly priced goods. According to Boon et al. (2008), this has a long-term negative effect of reducing the earnings of local businesses, which will eventually lead to low tax collection from the local business and in extreme cases, competition may force to lay off some of their staffs or even close down. The report by the Airports Council International (2004) further added that the airport provides entry for more substitute products, which lowers the cost of switching between different related products and it increases the bargaining power of customers. Therefore, local businesses will be forced to lower their prices because of the availability of various cheaper options that have been imported from areas where the cost of production is lower than that of the UK, thereby giving the foreign products a unique advantage (CDM Smith. 2012). 3.2 Indirect negative economic impacts The price hike for goods and services that are sold at the shops within the airport as well as the enterprises that are adjacent to the airport in the western side of London makes the place unfavorable or doing business because of high operating expenses. The report by Regeneris Consulting (2013) cited that convenient locations for doing business, which attract investors in large numbers usually, have low operating cost since this increases the potential earnings for businesses located in such areas. It is because of this reason that places like China, Philippines, and Dubai, among other are attracting a lot of international business, which is able to boost significantly their gross domestic product. Therefore, the artificial inflation caused by high demand arising from the huge passenger traffic at the London Heathrow Airport has an indirect economic impact of making London unfavorable for doing business. This is t o say that in the long-term, London is likely posed to lose its flare as more and more business are either relocating or outsourcing the business process to low cost areas. 4.0 Conclusions Airports are not simply locations for aircrafts to take-off and land or pick-up and drop-off passengers but rather they are key economic resources that provide positive and negative economic impacts on the economy of the local area where it is located or the country in general. Airports determine the accessibility of a region or country via air transport and its suitability for conducting international business. The London Heathrow Airport has been touted as the busiest airport in the UK and in Europe with a very big passenger capacity. This fact has positioned London as an international financial center with a vibrant economy that runs on a 24 hours basis and businesses are supported by huge demand from the many passengers who are departing or entering the region via the Heathrow Airport. However, the increase in demand arising from the huge passenger number has led to the creation of an artificial inflation within the London are whereby the cost of goods and services are significantly higher. This artificial inflation endangers the sustainability of London and the economic gains that are derived from the Heathrow Airport. References Airports Council International. 2004. The social and economic impact of airports in Europe. Retrieved from: http://www.ryanair.com/doc/news/2012/ACI-Report.pdf. Accessed on [20.11.2013] Alan, G. 2005. Time Flies: Heathrow At 60. Stroud: Sutton Publishing Boon, B. Davidson, M. Faber, J. Nelissen, D and Vreede, G. 2008. The Economics of Heathrow Expansion. Retrieved from: http://www.hacan.org.uk/resources/reports/4504.final.report.pdf. Accessed on [20.11.2013] CDM Smith. 2012. The Economic Impact of Commercial Airport in 2010. Retrieved from: http://www.aci-na.org/sites/default/files/airport_economic_impact_report_2012.pdf. Accessed on [20.11.2013] Graham, A. 2008. Managing Airports (3rd edition). London, UK: Routledge Hoare, A. 1971. Heathrow Airport: A Spatial Study of Its Economic Impact. London, BAAS Publications Inkson, C. and Minnaert, L. 2012. Tourism Management: An Introduction. London, UK: Sage Publications Philip, S. 2009. Heathrow: 2000 Years of History. Stroud: The History Press Regeneris Consulting. 2013. London Heathrow Economic Impact Study. Retrieved from: http://thamesvalleyberkshire.co.uk/wp-content/uploads/downloads/2013/09/Heathrow-Economic-Impact-Assessment-Final-Report.pdf. Accessed on [20.11.2013] Tribe, J. 2012. "The economics of recreation, leisure and tourism" (11th addition). London, UK: Routledge Read More