Heathrow vs. Gatwick: Investing to prepare for low probability, high impact, eventsDana Krechowicz - April 12, 2011
Imagine you’ve spent months looking forward to a Christmas reunion with your family who live an ocean away. You saved up to pay the cost premium for travelling around Christmas time, which you can really only afford to do every few years, making every Christmas (and other time) spent with your family precious. You arrive at the airport, excited, with luggage and presents in tow, only to find out that your flight has been cancelled, and the odds are, you won’t make it home in time for Christmas. This was the situation facing thousands of people flying from Heathrow Airport in London, England in December 2010. Although it may no longer be front page news, the chaos created at England’s Heathrow and Gatwick airports right before Christmas 2010 provides a very interesting example of how corporate decision-making has not adapted to the new environmental reality.
Heathrow is Europe’s busiest airport. It handles an average of 182,631 passengers a day (65.7 million per year) with ease. However, what it apparently can’t handle, is a few inches of snow. Between December 18 and 23 2010, 3.5 inches (9 centimetres) of snow fell (of that, most , 7 centimetres, fell in a single hour on December 18), leading to the cancellation of over 4,000 flights at the very busiest travel time of the year.
The airport’s "winter resilience" contingency plan was clearly overwhelmed, given that it could only keep the airport operating at full capacity if 0.8 inches or less of snow fell. Heathrow only owns 10 snow plows and 7 de-icing machines for clearing its two runways (despite publicly claiming in November 2010 that it owned 60 such vehicles – most are not for clearing runways but parking lots and other areas). This incident was after, owing to the shutdown of its Northern runway for 10 hours due to snow in February 2009, Heathrow had undergone a “winter resilience review”, which indicated vast room for improvement. The government had ordered the airport to implement an improved “snow plan” which apparently was not done. Specifically, it had not added any new equipment to clear snow and ice from the runways, despite having been ordered to do so.
It is estimated that the shutdown cost Heathrow’s owner, British Airports Authority (BAA – owned by Ferrovial SA of Spain), at least £25 million, and untold other costs in terms of relationships with key airlines, customers and the public. Conventional thinking would say, London, England is not in a snow belt, so one would not expect Heathrow to be prepared for a large snowfall. A snow storm on this scale is expected only every 5 years in London, and December 2010 was the coldest in 100 years. It’s unfair to compare Heathrow’s snow clearing prowess with that of a Chicago, Toronto or Montreal airport, which are accustomed to dealing with snow.
However, one need not look across the pond for a point of comparison. Gatwick Airport, located only 38 kilometres away from Heathrow, was better prepared. Gatwick is focused mostly on domestic and European flights, and handles about 33 million passengers per year, half that of Heathrow. It is the busiest single-runway airport in the world. During the same snowstorm that shut down Heathrow, Gatwick was also shut down, but for a shorter time – 23 hours versus almost 40 hours, as shown in table 1.
Table 1: Heathrow vs. Gatwick in terms of zero flow rate (h:m) and % departure cancellations
|Airport||Dec. 16||Dec. 17||Dec. 18||Dec. 19||Dec. 20||Dec. 21||Total|
Source: Report of the Heathrow Winter Resilience Enquiry
Why was Gatwick better able to handle the snow? Well, the simple answer is, Gatwick, although half the size of Heathrow, has devoted more resources to snow clearing equipment and staff. It has 14 snow plows specifically for clearing its runway (47 snow removal vehicles in total) and has 150 snow clearing personnel (to Heathrow’s 50). The previous year, Gatwick had invested £1million in snow equipment; double Heathrow’s investment. As a Gatwick spokesperson stated about the snow "this is not a one-in-20-years event. It's going to be more frequent than that, as the last few weeks have shown.”
So the question should be obvious - why did two companies, in the same line of business, located in the same climatic zone, make two different decisions with regards to investment in snow clearing equipment? Obviously one company saw it as a threat that warranted capital investment, even if the equipment would not be routinely used, but only deployed under “extreme” circumstances. The question is how these decisions were arrived at in each company’s case – i.e. what data informed its decision, how the different personalities and beliefs of the decision-makers influenced the final decision, and so on.
An inquiry into the Heathrow incident states that management had not fully anticipated the storm, despite weather forecasts from December 14 that indicated upcoming heavy snowfall. It had insufficient stocks of critical supplies, such as de-icing chemicals. BAA did not have a clear plan in place to prioritize the use of its limited snow clearing resources, and so ended up arguing with the airlines about where to deploy equipment and staff. Communications were badly managed, with airlines and passengers receiving conflicting messages. In short, the company was not anywhere close to prepared in terms of equipment or planning, and ended up, not only looking totally disorganized; but generating a ton of ill-will from customers and the British public (the incident was termed “a national disgrace”), and racking up a huge bill in the process.
BAA now plans to spend £50 million (that’s 100 times what it spent last year, before the storm) to improve Heathrow’s bad weather (and other emergency) response. It would have been cheaper to invest up front in snow clearing equipment, even if it were not going to be regularly used, just to be prepared for this low probability, high impact event. Especially as this type of event is becoming more common.
So, do companies have the decision-making tools and data to confidently make forward-looking investments for low probability, high impact, events? At the moment, for some at least, they clearly don’t.
For more details, see: Heathrow Winter Resilience Enquiry