Heathrow to raise its airline charges, from current £17 per passenger, to raise £3 billion for huge modernisation

Heathrow airport will announce modernisation plans later this month. These will cost some £3 billion and cover the period 2014  – 2019. This follows a £5bn investment plan between 2008 and 2013. Heathrow is also intending to increase its airline charges, with rises in costs rising from the current level of £17 per passenger to perhaps up to £25.  These rises are above the level of  inflation.  Heathrow says it is raising the charge because it has had 10% fewer passengers than originally predicted using the airport recently due to the recession. This means Heathrow now has to cover a £646m shortfall and it needs to make up the difference by higher charges. Heathrow airport is also still paying for investments made in the new Terminals 2 and 5. Colin Matthews, the chief executive of Heathrow, says the modernisation is needed in order to keep Heathrow as the UK’s leading airport. The investmentwill include investment in Terminals 5 and 2, as well as improving baggage handling facilities and building new stands for the Airbus A380.


 

Heathrow backs future with £3bn investment

Heathrow is to invest £3bn in developing infrastructure in a major boost to Britain’s leading airport.

Anti-austerity strikes cause flight cancellations

Heathrow will say that the £3bn will be used to continue investment in Terminal 5 and Terminal 2, which will be further extended. 

3 Feb 2013  (Sunday Telegraph)

In a signal that the company believes that it could still be backed by the Government, which is undertaking a review of runway capacity, the airport group will announce the modernisation plans later this month.

They will cover the period between 2014 and 2019 and follow a £5bn investment plan between 2008 and 2013.

Alongside the development plans, Heathrow will also reveal a major increase to airline charges, with rises in costs per passenger well above inflation.

The reason for the increase in the charges is because fewer passengers have travelled through the airport than originally predicted.

Airlines will have to bear the cost of the charges, which could rise to as high as £25 per passenger from around £17 per passenger now.

Sources close to the airport said that the business was bound by regulations from the Civil Aviation Authority, which predicts the number of passengers passing through the airport. Following the financial crisis passenger numbers were 10% lower than the CAA predicted, meaning that Heathrow now has to cover a £646m shortfall.

It is also still paying for investments made in the new Terminals 2 and 5.

Colin Matthews, the chief executive of Heathrow, which was formerly known as the British Airports Authority, will argue that Heathrow must continue investing if it is to have any chance of winning the battle to retain its status as the UK’s leading airport.

Sir Howard Davies, the former executive chairman of the Financial Services Authority, has been commissioned by the Prime Minister to review aviation needs in the UK.

Sir Howard said on Friday that he will look at proposals to rebuild Heathrow as a four-runway airport to the west of the present site.

Other contenders for airport development include keeping Heathrow where it is and adding a third runway, expanding Stansted or building a new airport in the Thames Estuary.

It is thought Sir Howard will choose three options ahead of the next election, before completing his review after 2015.

Heathrow will say that the £3bn will be used to continue investment in Terminal 5 and Terminal 2, which will be further extended.

Baggage handling facilities will also be improved. Luggage handling is one of the key issues for customer satisfaction and so far Heathrow has reduced the number of bags lost per 1,000 customers from 40 in 2007 to 15 in 2012.

Customer satisfaction levels have also improved, with passengers who said that their experience at Heathrow was “excellent” or “very good” rising from 38% in 2006 to 75% in 2012.

New stands will also be built for the Airbus A380, the double-decker airliner which can carry almost 850 passengers. It is such a large aircraft that it needs special facilities at any airport it uses.

“We want Heathrow to have more facilities for the new aircraft, which is much quieter, than any other European hub,” [??] one source close to Heathrow said.

 

http://www.telegraph.co.uk/finance/newsbysector/transport/9844808/Heathrow-backs-future-with-3bn-investment.html

 

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Quinquennial Reviews of Designated Airports

Under the Airports Act 1986 the CAA has to set price caps on airport charges generally every five years at airports designated by the Secretary of State. The airports currently designated are Heathrow, Gatwick and Stansted. Before it can set a price cap the CAA must, consistently with the Airports Act, make a reference to the Competition Commission unless the Secretary of State directs otherwise. The reference asks the Commission to report on what the maximum limit on airport charges for the following period of five years should be, and whether, since the date of the previous reference, the airport has pursued a course of conduct contrary to the public interest.

Details at http://www.caa.co.uk/default.aspx?catid=78&pagetype=90&pageid=67

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The Heathrow website says:

Airport charges and passenger volumes

Heathrow Airport is subject to the Airport Charges Regulation 2011, which was transposed into UK law from a European Directive for its member states. This regulation aims to ensure a common framework for regulating airport charges, which includes consultation and transparency of information when setting airport charges.

The level of airport charges is set each year in accordance to the CAA’s pricing formula, which is part of the CAA’s decision on Airport Regulation of Heathrow and Gatwick Airports 2008-2013.

The formula set by the CAA determines the level Heathrow cannot exceed in charging its airline on a per passenger basis (passenger only), which is also referred to as the “maximum allowable yield”. The maximum allowable yield is set following a period of formal consultation with the Heathrow airline community, with prices effective from 1st April each year.

The CAA formula for the maximum allowable yield is calculated by taking the following into account;

Retail Price Index = August RPI is used
Value of X = Fixed at 7.5%
Capital triggers = reduction in the maximum allowable yield when the airport
has not achieved particular capital investment project milestones
Bonus = airport can earn a bonus if it exceeds targets for certain service quality measures
Correction factor = corrects for any under/over recovery of actual airport
charges against the maximum allowable yield

The maximum allowable yield is then converted into an estimated total revenue that Heathrow can recover. This is estimated by using a forecast for total passengers (i.e. maximum allowable yield multiplied by total passenger numbers).

The total revenue from airport charges is then recovered from Heathrow’s structure of airport charges.

The structure of airport charges has been subject to formal consultation with the Heathrow airline community and has resulted in the total airport charges revenue being recovered through three categories; Landing Charges, Departing Passenger Charges and Aircraft Parking Charges. The three categories (excluding ANS) represent 21%, 75% and 4% of the total airport charges revenue respectively.

Heathrow’s structure of airport charges is designed to support its shared vision “to be a world class airport – the UK’s direct connection to the World and Europe’s hub of choice by making every journey better”. The structure of airport charges encourages most efficient use of airport scarce resource, supports the “hub” status and promotes environmentally responsible behaviours.

The Conditions of Use document details the term and conditions that apply to users for using Heathrow’s facilities and services.

Airport charges are levied on a per passenger basis, for more information about passengers, please see Heathrow Traffic Statistics.

Further details on tariffs for airport charges, previous consultations and Conditions of Use can be found at www.heathrowairport.com/cou

http://www.heathrowairport.com/about-us/doing-business-with-us/economics-and-regulation/airport-charges-and-passenger-volumes