British Airways received a major boost today when the UK regulator, the CAA, announced its recommendation that passenger charges at Heathrow should rise by the rate of inflation minus 1.3% for the five year period commencing April 2014. At current prices, that would mean a real term reduction from £20.50 per passenger now to £19.34 per passenger in 2019.
In February, Heathrow had proposed that its charges should increase by 5.9% above inflation for each of the same 5 years and, although in private it probably never expected such a generous settlement, it will still have been shocked by today’s report. While Heathrow has argued that it needs to increase its charges in order to continue investing in the airport, the airlines and CAA have taken a somewhat contrary view; with Terminal 5 having opened in 2008, and Terminal 2 set to re-open in 2014 after a complete re-build, the major capital investment projects at Heathrow will have come to an end and so, the likes of British Airways argue, any increase in charges would simply be an excuse for the airport’s investors to line their pockets - this at a time when airlines around the world are struggling to make any profit at all.
When Heathrow proposed its 5.9% annual increase in charges, British Airways had countered with an (equally unrealistic) proposal for an annual reduction of 9.8% below inflation. Reacting to today’s news, Willie Walsh, CEO of British Airways parent company IAG had this to say: “Heathrow airport is over-priced, over-rewarded and inefficient and these proposals, which will result in an increase in prices, fail to address this situation. In the past the CAA has rewarded Heathrow for inefficiency and it is now the most expensive hub airport in the world. Its charges have tripled in the last 11 years with inflation busting increases year-on-year”. Nothing new there then although we are pretty confident that Willie Walsh will be happier than his counterpart at Heathrow, Colin Matthews.
At the same time as publishing its proposals for Heathrow, the CAA also announced that it planned to adopt a lighter touch in regards to charges at London’s 2 other major airports, Gatwick & Stansted. Both airports were once part of BAA, the original parent company of Heathrow, and were forcibly sold off in order to introduce competition to the capital’s airport industry.
Although British Airways has never flown out of Stansted (unless one counts its old low cost off-shoot, Go) it does still have a significant presence at Gatwick. There, the CAA has said that it wishes to see a more flexible regime that will allow the airport to compete with Heathrow on commercial terms. Thus far however, no agreement has been reached and, should that continue to be the case, the CAA has advised that charges at Gatwick will rise by 1% above inflation for the same 5 year period.
A final announcement on charges at all 3 airports is expected in October.