London Heathrow routes to China worth GBP510 million to UK economy

A new study from Frontier Economics ‘The Economic Impact of Connections to China’ has highlighted the value of non-stop air connectivity to China. Much has been highlighted over recent years about the potential of the huge outbound market from China and their significant spend, but this study now puts a price on this market. In the case of London Heathrow direct flights between London Heathrow and China contribute GBP510 million per year in GDP to the UK economy and create 14,550 jobs. The Hong Kong links alone are responsible for GBP315m of this contribution, followed by Beijing and Shanghai.

TABLE – Hong Kong connections to London Heathrow are responsible for the greatest economic impact among the Chinese routesSource: Frontier Economics

The UK’s largest gateway is currently linked to three of China’s largest cities Beijing (Air China and British Airways), Shanghai (British Airways, China Eastern Airlines and Virgin Atlantic Airways) and Guangzhou (China Southern Airlines), as well as to Hong Kong (British Airways, Cathay Pacific and Virgin Atlantic Airways). Beijing Capital Airlines, part of HNA Group introduced flights from Qingdao in Nov-2017, while non-stop flights were also offered to Chengdu by British Airways up until Jan-2017.

CHART – Seat capacity from China (and Hong Kong) to London Heathrow has remained relatively stable over the past ten years mainly due to a reduction in capacity from Hong Kong, but did peak at over 150,000 one-way seats in Aug-2017Source: The Blue Swan Daily and OAG

Together there are more than 100 weekly flights into Heathrow from China, more than half from the former British territory of Hong Kong, but also with 20+ flights from both Beijing and Shanghai and ten from Guangzhou. The Frontier Economics research has found just one additional service per week on each of its existing Chinese flight connections could generate an additional GBP16 million to GDP as a result of increased business travel, and stimulation for increased trade and investment between China and the UK.

TABLE – The economic impact of one additional frequency on Chinese routes at London Heathrow range from GBP2 million to GBP5 millionSource: Frontier Economics

The catalytic impact of the flights is based on a standard formula used by Frontier Economics in previous studies for London Heathrow and other airports and airlines. Basically, a direct flight between Heathrow and China is seen as being quicker and more convenient for passengers than flying indirectly, so direct flights attract extra demand. That is, because the overall time and journey costs are reduced, some passengers, who would not travel otherwise, will opt to take the direct flight and complete the journey. The economic activity related to the new passengers can therefore be said to be facilitated by there being a new direct connection.

CHART – The basic fundamentals behind the catalytic impact of a new route are based around convenience stimulating demandSource: Frontier Economics

The value of the Chinese connections highlights the important role of the country as a trading partner with the UK. China was the UK’s 6th largest trading partner for exports in the 12 months to Nov-2017 – behind only the US, Germany, France, the Netherlands, and Ireland. Exports to China over this period were worth an estimated GBP15.3 billion. UK imports from China during the same period were worth GBP38.4 billion. The value of UK imports from China was second largest, behind only Germany.

TABLE – The UK and China are becoming increasingly important trading partners across a range of commodities and sectors, many now travelling by airSource: Frontier Economics

In Dec-2017, the UK Government announced that Chinese banks will have direct access to foreign exchange markets in London – intended to open a new channel for trading the renminbi in London, supporting the internationalisation of renminbi, and bringing new business to London’s financial markets. Chinese investment in the UK reached USD20.8 billion in 2017, up from USD9.2 billion in 2016.

While connections to Chinese cities are clearly valuable to the UK, Frontier Economics notes that rival EU hub airports with capacity to meet demand are now able to offer links to 14 additional Chinese destinations, opening up significantly more trade and investment opportunities to their respective countries. These comprise: Changsha, Chengdu, Chongqing, Hangzhou, Kunming, Nanjing, Sanya, Shenyang, Shenzhen, Tianjin, Urumqi, Wuhan, Xiamen and Xi’an.

READ MORE: Download the ‘The Economic Impact of Connections to China’ paper.

Last year, The Blue Swan Daily highlighted another economic impact report on flights between China and the UK, this time highlighting the value of Hainan Airlines’ flight linking Beijing and Manchester.  A study by the economic consultancy Steer Davies Gleeve revealed that in its first year of operation the service had driven a significant increase in exports, inward investment, and international student numbers into the North, generating a visitor spend of GBP138.8 million and boosting export value from Northern England by 265% to GBP200 million per month.