In the News

A Question of Supply - Heathrow implements a Capacity Cap

Geoff Riley

13th July 2022

The UK’s busiest airport, has announced a two-month cap on departing passengers at 100,000 a day to limit queues, baggage delays and flight cancellations.

It is also asking airlines to stop selling tickets for flights that could be curtailed.

Such capacity limits are a response to severe labour shortages facing the airport. Unemployment is at record lows and the number of job vacancies is at a record high of 1.3 million. Airports and the businesses contracted to provide services there are struggling to recruit, train and gain security clearance for new employees.

The tight labour market is clearly one of the main problems - many furloughed workers have moved into alternative jobs since lock-down travel restrictions were lifted.

But the consequences of Brexit cannot be ignored. The end of free movement as the UK left the EU single market has restricted the ability of aviation businesses to source extra workers from within the EU.

Put simply, the aviation sector is struggling to cope with a surge in demand and chronic staff shortages - some of it their own making.

For business economics students, it is a good applied example of capacity issues and recruitment lead times.

The cap amounts to a cut of 4,000 passengers a day - will be in place until 11 September. Some of the excess demand can be met by switching flights to other UK airports such as Gatwick and regional airports. But these airports are also suffering from labour shortages too. Expect seat prices to rise as a market response to excess demand.

The rationale behind the cap can be found here

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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