Spillover Effects of the Development Constraints in London Heathrow

This paper aims to estimate the impact that the London Heathrow development constraints have on the other airports in the area. Our hypothesis is that lower traffic in London Heathrow due to its limitations induces higher than expected growth in the other airports, and vice versa. To that purpose, this paper introduces a two-stage innovative methodology to estimate this phenomenon that we called "spillover effect". We test this methodology on passenger traffic from 1990 to 2007, separating intercontinental from European traffic, the latter being also influenced by low-cost expansions. In the intercontinental case, preliminary results show that the highest spillover effect is that between London Heathrow and Gatwick, as one would expect. Interestingly, we also find a significant spillover effect between Heathrow and Manchester, proving that the impact of the Heathrow development constraints could be felt even further away from the London area. In the case of European traffic, after controlling for the low-cost growth at the other airports of the London area, we do not find any significant spillover effect. The main reason is that since low-cost carriers do not operate at Heathrow, its limitations could not affect their development in other airports.