THE importance of the UK's regional connectivity has been emphasised again recently, not through the country’s rail links but this time through regional airports.

A study by The Smith Institute claims a new London hub is needed to stall the decline of regional airports, which is damaging local economies and undermining the UK’s competitiveness.

The report promotes ‘Boris Island,’ named after London Mayor Boris Johnson, who has fought for a multi-million pound, four runway airport on the Thames Estuary. The airport would cater for additional domestic routes and improved connections.

A regional connectivity strategy would therefore benefit local economies, synergies and efficiencies could therefore be shared nationally.

A third runway at Heathrow Airport is however considered a better option for Newcastle Airport due to the high level of service already in place at Heathrow and the familiarity of the route for travellers; in summer between six and seven flights leave Newcastle for Heathrow each day. However, the biggest issue is that the costs associated with Boris Island would have to be recovered by the airport, resulting in them perhaps imposing higher landing fees than those at Heathrow.

Recognised as an essential driver for the regional economy in terms of connectivity and jobs creation, Newcastle Airport has a master plan designed to allow the North-East hub to build on its position. Despite the economic downturn, the North-East has retained a strong economic base of manufacturing and exporting businesses and the contribution of the airport to the region has remained strong. The airport is one of the largest regional airports in the UK and to encourage new routes and attract new customers, and in turn providing greater economic benefits to the North-East, the airport is committed to developing additional infrastructure, car parking and customer facilities.

Stocks in the airline sector fell recently after Air France–KLM, Europe’s largest airline group, lowered earnings guidance for 2014 due to weak cargo demand and the challenging situation in Venezuela. This follows Deutsche Lufthansa’s recent profit warning, reducing its operating profit forecasts for 2014/15.

Airlines are very likely to see reduced operating margins as a result of rising oil prices following the hostilities in Iraq. With increased costs and falling margins, prices will have to rise if the airlines are going to maintain profits. A difficult task given people’s overriding focus on price when booking flights.

The global market for air transport continues to grow; the low cost short haul services are now well established and the industry believes a new generation of aircraft will help them thrive. Airlines are also increasing capacity on transatlantic flights as well as flights between Europe and Asia.

samantha.dolby@brewin.co.uk

Samantha Dolby is an Investment Manager at Brewin Dolphin and offers advice on a wide range of financial services to private clients, trusts, charities and pension funds.

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