Heathrow 3rd runway

Heathrow Airport has submitted new proposals for slightly lower charges at the UK’s busiest airport.

Due to its near monopoly position, the fees that Heathrow can charge airlines are capped by the CAA (Civil Aviation Authority) and set over 5 year periods. The currrent pricing regime ends in March 2014 and, earlier this year, Heathrow set out proposals that would have seen it raise its prices by RPI plus 5.9% over the 5 year period from 2014-2019.

A poll tax on flying

Willie

Not surprisingly, these proposals were met by howls of derision from airline groups, most vocally British Airways, who claim that Heathrow is already too expensive. Willie Walsh, CEO of British Airways parent company IAG, submitted a counter proposal that charges at Heathrow should actually grow by RPI minus 9.8%.

Although Heathrow could easily brush off such a stark proposal from British Airways, it was unable to hide its dismay when, in April of this year, the CAA published its initial findings which suggested a cap in charges of RPI minus 1.3%. Only now, some 3 months later, has the airport responded with a counter-offer, this time of RPI plus 4.6%.

British Airways Terminal 5 Check-InAnnouncing their new proposal, the airport published the results of a survey of some 1,178 Heathrow passengers. In this survey, it is claimed, passengers said that they would rather see improved services and investment than lower fares. At the same time, Colin Matthews, CEO of Heathrow Airport Holdings warned that global investors would no longer be prepared to invest in Heathrow, or other UK infrastructure projects, if they were unable to make a fair return on their capital.

On Monday, British Airways, Virgin Atlantic and other airlines operating to Heathrow again rejected Heathrow’s proposals for a rise in fees and reiterated their call for an overall reduction.

Ironically, this heated disagreement about airport charges, which net Heathrow some £1.3 billion a year, comes at the very same time that Heathrow and its major customers are in full agreement over the need for a 3rd runway at the airport.

The CAA will publish its next report in October.

Heathrow Terminal 5

Heathrow Terminal 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Willie Walsh, CEO of British Airways parent company IAG, has publicly stated that he doesn’t believe a 3rd runway will be built at Heathrow.

The combative Irishman was speaking at a public evidence session, part of the Davies Commission into UK airport capacity.

A poll tax on flying

Willie

Commenting on the issue Mr Walsh stated: “I suspect the recommendations by the committee won’t be acted on by politicians… I’m critical of the politics behind their decisions. This government gave no credible alternative to a third runway so BA will continue planning for the future on the basis of a two runway Heathrow.”

After the last Labour government gave the go-ahead for a 3rd runway at the UK’s busiest airport, the Conservative / LibDem coalition came to power with an agreement that no further runways should be built at Heathrow (which Labour too now agree with). Of course easy promises made in opposition (promises made largely because of the number of marginal, west London constituencies that lie under Heathrow’s flight-path) become more of a problem once in power. With Heathrow already operating at 99% capacity, and airlines, business groups and unions all calling for additional airport capacity, the government has done what all governments do……side-step the issue.

The Davies Commission, led by Howard Davies, one time Chairman of the Financial Services Authority (remember what a great job they did?) has been asked by the government to look into UK airport capacity and to report back in full in 2015, after the next general election. What was it Mr Cameron said about no more ‘dithering’?

The political situation takes on an added level of complexity because, in addition to Mr Cameron & Mr Clegg’s national political interests, on a purely London-level the Mayor, Boris Johnson, is one of the biggest opponents of further expansion at Heathrow. Could he too be mindful of his power-base in west London? Instead, he and his advisors have called for the buiding of a brand new, 4 runway, 24 hour airport to the east of London. Such an airport would clearly solve the capacity problem but would require Heathrow to close entirely, which in turn would devastate the local west London economy, requiring massive new investment, all at the same time that even more investment was required (probably £80 billion plus) to build the airport to the east of London and all the associated infrastructure – transport, housing, schools, hospitals etc. Thus far Mr Johnson has failed to explain who will be paying for this.

As far as British Airways are concerned, of course they would like additional airport capacity at Heathrow. Of course? With their 2012 takeover of bmi, British Airways now control almost 50% of the slots at the world’s single, most finacially lucrative airport. With no new runways, British Airways dominant position can never really be challenged, either by domestic airlines such as Virgin Atlantic, or large, foreign carriers such as those from the Gulf or USA. IAG might very decide that a secure, profitable, mid-sized British Airways will do very nicely thank you.

And the future for Heathrow? 2 runways, higher fares, more delays and less direct flights.

British Airways aircraft parked in front of Heathrow Terminal 5

Heathrow Terminal 5