Holland-Kaye wants raised Heathrow landing charge, and public subsidy by cutting APD, to pay for runway

John Holland-Kaye has now taken over as CEO of Heathrow, from Colin Matthews. He has already angered airlines by saying he wants to give an adequate return to foreign investors in a 3rd runway, by raising the landing charges at Heathrow. Mr Holland-Kaye wants the landing charge to rise – in real terms – from £20 now, per passenger, to £24 within a few years, and it might rise to £27 by around 2040 (though predictions that far ahead are futile). Heathrow has been battling with its regulator, the CAA, for years on the level of its aeronautical charges.  The CAA recently cut its cost of capital to 5.35% in the 5 years to 2019, though Heathrow says its weighted average cost of capital needs to be 6% in the period between 2019 and 2048, to repay its investors. Mr Holland-Kaye also let slip that he wants a cut in Air Passenger Duty (APD) on long haul flights, which would effectively be a loss to the Treasury, and thus be the equivalent of a public subsidy, for a 3rd Heathrow runway. The level of APD on the longest flights was cut this year in the budget, combining the two top distance bands, effectively giving them a government subsidy.  He also said he “could not rule out the case for a 4th one in the future.”
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Heathrow passengers to pay for third runway

Airline passengers flying from Heathrow face higher ticket prices if the airport is allowed to build a third runway.

The airport is proposing to raise the “aeronautical charge” from the current £20 per passenger to £24 to help pay for the estimated £17 billion cost of building a new runway. These charges, which are regulated by the CAA, are usually passed on by airlines to the passengers.

Heathrow’s new CEO John Holland-Kaye told the Financial Times that the increase in charges would be required to ensure the company saw a return on its investment.

“It is a real-term increase that we believe our passengers are prepared to pay in order to get to the global markets they need to get to,” Holland-Kaye told the FT.

A Heathrow spokeswoman said that the proposed increase in charges was part of its submission to the Airports Commission which is considering whether Heathrow or Gatwick should be allowed to expand.

Heathrow has said it would be able to open a third runway by 2026 if given the green light by the next government.

“Ticket prices will continue to rise as part of the plan to support the third runway investment,” she told BBT. “This is because of supply and demand – at the moment there is great demand for flights. But after the investment has been made, then landing fees will start coming down.”

Airlines have consistently objected to any increase in charges at Heathrow because of their already high level.

The Airports Commission, chaired by Sir Howard Davies, is due to submit its final recommendations for airport expansion in summer 2015 after the next general election.

Heathrow has claimed in its submission that a third runway would add 40 new routes from the UK and cut average fares by £320 due to the competition created by the increase in capacity.

http://buyingbusinesstravel.com/news/0122720-heathrow-passengers-pay-third-runway

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Heathrow landing charges


Heathrow eyes jump in landing charges

………………..Landing fees, which are set by the regulator, [the CAA] are the biggest single source of revenue for Heathrow and were worth £1.5bn last year. They are usually passed on by airlines to passengers.

…………………Heathrow’s shareholders – led by Spain’s Ferrovial but also including Chinese, Qatari and Singaporean sovereign wealth funds – were, he said, prepared to invest in a third runway so long as there was “political consensus” behind the infrastructure, a “speedy planning” process and an “appropriate” regulatory regime.

Heathrow was, he said, looking at a £4 increase in the aeronautical charge, adding: “It is a real-terms increase that we believe our passengers are prepared to pay in order to get to the global markets they need to get to.” [No mention of the majority of leisure passengers that use Heathrow].

Heathrow is willing to explore ways to offset the impact of higher landing charges – for example, air passenger duty could be cut on long-haul flights.

The UK Civil Aviation Authority infuriated Heathrow this year by insisting on a real-terms cut in the airport’s landing charges – just as the company was completing its £2bn Terminal 2, which opened last month.

……………………..In a detailed submission about the third runway to the Airports Commission, Heathrow suggests an average aeronautical charge of almost £24 per passenger between 2019, when construction of the third runway could start, and 2048. The charge could peak at more than £27 before falling to less than £20 after 2044.

Heathrow estimates the airport’s weighted average cost of capital – a proxy for return on invested capital and a significant part of the regulatory formula for determining landing charges – to be 6 per cent in the period between 2019 and 2048.

This comes after the CAA angered Heathrow by cutting its cost of capital to 5.35 per cent in the five years to 2019.

Full FT article at

http://www.ft.com/cms/s/0/3e417218-0079-11e4-9a62-00144feab7de.html#axzz36D4Ajzwx

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Willie Walsh on Air Passenger Duty:

Willie Walsh has been arguing against Air Passenger Duty (as have most airlines) for years, ignoring the inconvenient fact that it is levied by the  Treasury because air travel pays no VAT and not fuel duty – and so is significantly under-taxe.
One example of his opinions:

ut Walsh believes there was still an opportunity to scrap APD in the UK, a tax he believes is a “disincentive to invest in the UK, a disincentive to do business in the UK” and is “discouraging tourism”.

Walsh says the industry “made the mistake of standing back” while Gordon Brown doubled APD in 2006 for environmental reasons, but claimed that “not a single penny” of the money raised from APD goes towards environmental purposes.

He said: “We should continue to argue against APD. I know people say I shout on about things and nobody is listening but I’m going to continue shouting on about them. It doesn’t bother me if people don’t listen because ultimately I think they will listen.

“If we keep hammering home this issue, then maybe people will listen in the treasury and maybe they will accept that there is an issue that needs to be addressed here. At some point you have to hope that common sense prevails. On APD, I genuinely believe the UK economy would improve and would see increased growth if APD was removed.

“I think more and more people are coming on-side with us and more and more people are agreeing with us, and we need to mobilise people to ensure this issue does get addressed because it is impacting significantly on our competitiveness. It is a significant drag on UK competitiveness.”#

http://walesairforum.wordpress.com/2013/10/23/airlines-should-have-stood-up-to-government-over-apd-sooner-says-walsh/

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Earlier:

 

Chancellor cuts rate of Air Passenger Duty for long haul (over 4,000 miles) flights from 1st April 2015

March 19, 2014

In the Budget 2014 the Chancellor has announced that rates of Air Passenger Duty (APD) are to be reduced for flights of over 4000 miles from London, from April 2015. Rates of APD will rise by the rate of inflation (RPI) during 2014. After 1st April 2015, distance bands for all journeys longer than 2,000 miles will all be lumped together. While the rate of APD during 2014 (from 1st April 2014) is £13 for a return trip below 2,000 miles (anywhere in Europe), and the rate for journeys of 2,000 to 4,000 miles in length is £69 – the rates from April 2015 will be £13 for the short flights, and £71 for all other distances. The rates of APD in 2015 for premium classes will be £26 and £142. Commenting on this retrograde move by the Chancellor, the Aviation Environment Foundation said it is a backward step environmentally and economically. Aviation is already massively under-taxed compared with the £10 billion that would be raised per annum if aviation wasn’t exempted from fuel taxes and VAT. APD was a means of redressing this problem but any cut means that taxes will have to be raised elsewhere to balance government spending. Long-haul flights contribute more greenhouse gases in absolute terms than shorter flights. It is therefore right that the duty is proportional to the distance flown and the associated emissions. Eliminating bands C and D breaks the link between environmental impacts and tax and breaches the principle of fairness.

Click here to view full story…

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Heathrow proposes cutting airline landing charge rise to 4.6% above RPI for 5 years

23.7.2014In February Heathrow announced it was intending to increase its airline landing charges, from the current level of £17 per passenger to perhaps up to £25. This caused very negative responses from airlines that use the airport. Now Heathrow has moved to appease airlines by offering to reduce the rise it is seeking to charge between 2014 and 2019. Heathrow has submitted a plan to the CAA seeking approval to raise tariffs by 4.6% above inflation, as measured by the retail prices index (RPI), for the 5 years from April 2014. That is 1.3% lower than their earlier offer of a rise of 5.9%. It means a rise of £1 per  year, so a £5 rise by 2019. Gatwick has also agreed to scale back their planned fee increases. Earlier this year Willie Walsh called the airport “over-priced, over-rewarded and inefficient”.  However, the investors, including Ferrovial and the sovereign wealth funds of Qatar, China and Singapore, who have spent more than £10 billion on the airport over the last decade, expect to see a good return on their investment ie. they want high fees to airlines.http://www.airportwatch.org.uk/?p=3891.

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Part of a long article, in CAPA, 

CAPA Profiles 

Airport charges: EC reports increased transparency in setting charges, but uneven implementation

http://centreforaviation.com/analysis/airport-charges-ec-reports-increased-transparency-in-setting-charges-but-uneven-implementation-171572

includes the speculation that it was the CAA regulatory settlement on Heathrow charges that precipitated Colin Matthews decision to leave :

….”

  • The interaction between charging levels, market power and investment commitments, and how necessary that investment is to the airlines. For example the UK‘sHeathrow Airport, which has some of the highest charges globally, upset airlines with plans to raise charges per passenger from GBP21.96 to GBP27.30 over a five-year period (almost 6% over inflation), which it claimed to be necessary to support its ongoing GBP3 billion investment programme. Those charges paid by airlines constitute the biggest single source of income for Heathrow Airport, raising GBP1.3 billion for Heathrow in 2012.
    Eventually, the UK CAA decreed that landing charges there should be reduced by a formula of retail price inflation (RPI) minus 1.5% every year between Apr-2014 and 2019 by which time the price per passenger would reduce to GBP19.10. With its investment programme allegedly in jeopardy at the very time it was trying to convince the Airports’ Commission that Heathrow Airport is the logical choice for the one single additional UK runway that the Commission will recommend to government – and which would be self-financed – Heathrow Airport Holdings reacted strongly. The decision may even have prompted the CEO to choose to resign.
    This is a clear case of airlines swaying opinion amongst the regulators, though not necessarily by consulting with the airport. Comparatively speaking both of the other two major London airports came out of the CAA’s deliberations in better shape.
    Gatwick Airport was offered a flexible regulatory approach based upon price and service quality commitments agreed between Gatwick and their airline customers, underpinned by a licence from the CAA, subject to a price cap that would apply in the event no commitments were forthcoming, with prices capped at RPI plus 1% for the five years from Apr-2014. Gatwick is alleged to have increased prices by 50% over the last five years.
    Meanwhile, Stansted Airport, which was deemed to have little market power (though it could increase as the London area becomes more capacity constrained), was told it should be removed from regulation and be free to strike its own agreements over charges directly with airlines. The reaction of Ryanair, the largest airline by far at Stansted, and one that frequently accused the previous owner, BAA of an obsession with building a ‘Taj Mahal’ there, was that the decision will mean a rise in charges and will result in “yet more damage to UK consumers and competition”;….”
  • Heathrow charges per aircraft type

 

[ AirportWatch member comments:

“I was surprised at the data presented in the CAPA Airports Charges and Benchmark Database which seemed to show that Heathrow had a standard landing charge across a variety of plane types and ended up being cheaper than the selected comparison airports for a 747 but expensive for a A320 or 737. It would be interesting to have this confirmed by the airport and get a comment on how this supports the claims that the airport incentivises new quiet planes.” ]

 

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