Heathrow Airport regulations appear to be a bad deal for passengers

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It is difficult to keep track of the many and various ways in which London’s Heathrow Airport has attempted to pass the costs of the pandemic on to its customers.

There was a charge of £ 5 (€ 5.90) ​​for cars dropping off passengers. There was the ‘pandemic tax’ of £ 8.90 (€ 10.55) to cover the costs of baggage handling, electricity and other services.

Then there was the attempt to increase the airport’s regulated asset base, or RAB – a mechanism that normally incorporates the investment in returns that the airport can earn over a long period of time – d ‘a whopping 2.6 billion pounds (3.08 billion euros) to grab back losses.

The Civil Aviation Authority regulator rightly called this “disproportionate” in April, allowing £ 300million (€ 355million) to be added to the RAB, a position that he kept on Tuesday when his proposals were announced for the next five-year term. regulation.

The airlines, who wanted the £ 300million cut, won’t be happy – and neither will Heathrow. But this is the normal situation in an industry defined by its various dysfunctions.

“The system is down,” said Andrew Charlton of Aviation Advocacy. Instead of using Covid-19 as an opportunity for a reset, he argues, governments and regulators have held the industry down with a variety of “weird adhesive bandages”.

Operating costs

The next battle is over the operating costs of the airport given the drop in passenger numbers, and who will bear the risks of this recovery. And again, it seems the preferred response is customers.

The consortium of wealthy owners of Heathrow, which includes Spain’s Ferrovial and the Qatar Investment Authority, has withdrawn £ 4bn (€ 4.7bn) in dividends from the airport since 2012 – including 100m pounds sterling (118 million euros) in April 2020. However, they did not put their hands in their pockets last year, despite the airport’s strained finances.

Now, they seem remarkably determined to test the idea that travelers will continue to walk through the gates of what is already one of the most expensive airports in the world.

The airport had suggested that the fees, which are ultimately paid by travelers, be increased by 90 percent over the next five years. In this case, the regulator proposed an increase in charges from 15 to 60%, which provoked a furious reaction from the airlines and will now go to consultation.

There is a lot of nonsense to be done here. Airlines are complaining of “drilling” into a regulatory system they helped design and implement, and as Heathrow points out, charges fell 20% in the seven years leading up to the pandemic.

The proposal appears to give Heathrow an agreement largely in its favor. The airport estimates that it could take until 2026 for passenger numbers to return to their 2019 levels, at best – that’s significantly darker than the rest of the industry. But this supports his argument that high fixed costs and fewer people require higher fees (which could coincidentally help him recoup pandemic losses).

Price sensitive crowd

Yes, the long-haul and business trips that filled Heathrow could stay on the ground longer than short-haul leisure flights. But the latter is picking up well. And some of the carriers that entered the airport during Covid-19 are not full-service premium carriers, but low-cost names like Blue Air and Sky Express.

This means that, one way or another, airport patrons, both in terms of airlines and sit-ups, are likely to become a more price-sensitive crowd. Heathrow needs to show that it can “look for ways to do things cheaply” and “review its business model in light of structurally altered demand,” said John Strickland, an aviation consultant.

Instead, the downside of a slower-than-expected recovery, or the risk that business travel never picks up as before, could be passed on to airlines and consumers through a new risk-sharing mechanism. proposed based on traffic figures. A brighter-than-expected outlook would see the costs ultimately returned to the airlines (although passengers see all of that is another question).

But Heathrow could get the much higher airport charges it wants, while passing the risks of a slower recovery to airlines and holidaymakers – and it’s not clear the risk transfer was properly taken into account. counts in its regulated returns. It shouldn’t fly.

– Copyright The Financial Times Limited 2021


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