We are sure that many of you, like us, Dear Readers, you hadn’t come across this phrase before?
But, the phrase Sunk Cost Fallacy is a term from economics. It refers to the tendency to continue an endeavour or decision based on previously invested resources, usually time, money, effort, rather than on a rational assessment of future benefits. This mindset can lead to poor decision making, as individuals/companies may feel compelled to justify past investments, even when abandoning the endeavour would be more beneficial. It highlights how past costs can unduly influence current choices, often resulting in further losses.
Or to put it more plainly, when you are in a hole, stop digging.
City AM recently ran an article in which a spokesman for Luton Airport, hinted that the Airport Expansion plans for the airport could be at risk, after the increases in Business Rates announced by the Chancellor of The Exchequer in her recent budget:
https://www.cityam.com/exclusive-london-luton-airport-investment-under-threat-du
Immediately, Luton Rising (LR) the architects of the expansion plans, refuted that claim.
So, who are we to believe on the matter?
We can only assume that the comments in the City AM article, came from the Airport Operator, London Luton Airport Operations Ltd (LLAOL). This company is a joint venture, experienced in running and developing airports around the world. With regards their operation of Luton Airport, they have delivered several developments, the biggest being Project Curium.
Soon after the plans for Curium were announced, LR/LBC announced they would build a DART Link to replace the Bus Shuttle Service from Luton Parkway station to the central Terminal Area. The Bus Shuttle Link this would replace, was funded by the rail operators, at no cost to LLAOL or LR. A heavily redacted Business Plan we have seen for DART, showed that the DART was undertaken because one airline said, that the bus shuttle would directly influence their Expansion Plans for Luton.
Despite the huge expense and knowing that it would not bring a financial return, LR with the financial support of its parent company, Luton Borough Council (LBC), decided that despite DART not having a financially beneficial business plan, they decided it was essential – they so built it anyway.
Building a project that over ran to more than £300 million, which they knew would never turn a profit, which they then declared a write down off unrecoverable costs on, currently standing at £232 million, fiscal control of a project, or sunk cost fallacy?
History now appears to be repeating itself.
LR/LBC are going to progress Airport Expansion come hell or high water, or face the financial Armageddon it could bring to LR/LBC and the town of Luton?
Is LR/LBC suffering from Sunk Cost Fallacy, egotism at its finest. Insanity by repeating the same thing over and over again and expecting a different outcome, or a heady cocktail of all three?
We would suggest all of the above?