Gatwick “promises” to cap landing charges to £15 + inflation for 30 years (if it gets an unspecified 30 year “contract” from Government)

Gatwick airport, in frenetic publicity in the months before the Airports Commission runway recommendation (expected late June) has made various pledges – in the hope of currying favour. It says it will “bear all the main risks” of a new runway. Sir Roy McNulty, chairman of Gatwick, has written to Sir Howard Davies saying – among other things – that the landing charge will be kept at £15 (plus inflation) for 30 years. As long as there is no new Heathrow runway. (It is currently £9). Sir Roy said it is “in return for Government agreeing a 30 year contract” though exactly what that means is not explained.  Presumably a contract that there will be no other runway? Gatwick also says it will “bear all the main risks of the expansion programme . . . including long-term risks related to traffic levels, market pricing, construction and operating costs”. How exactly?  Gatwick’s main airline, EasyJet, is not happy with charges rising to £15.  The Airports Commission consultation documents considered Gatwick’s estimate of £15 to be too low, and instead considered “average charges rising to between £15 and £18, with peak charges of up to £23.” These higher levels were due to lower estimated levels of air passenger demand than Gatwick’s optimistic figures, and higher infrastructure costs. [ Airports Commission’s consultation document Page 47]. 
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Gatwick vows to cap landing fees for 30 years

Gatwick is reportedly promising to cap landing charges for 30 years and cover the main risks of expansion.

Airport chairman Sir Roy McNulty has written to the Airports Commission setting out five promises including a guarantee to keep charges per passenger at £15 plus inflation for 30 years and a pledge to have a new runway operational by 2025.

The guarantees would only hold if Gatwick were the only airport chosen for a new runway.The project does not work economically if both go ahead,” he said. “If part of the incremental traffic is taken by [one airport]…it would be very difficult. The economics do not work for two at a time.”

Sir Roy said the guarantees would make clear the commercial basis of Gatwick’s bid for expansion, the Financial Times reported.“There is a lot of talk about the pros and cons of the schemes,” he said. “In the end . . . this is about what sort of deal this is for passengers, for the government and for those communities around the airport.”

As well as the cap on airport charges, and a firm start date for operation, Gatwick promised that it would “bear all the main risks of the expansion programme . . . including long-term risks related to traffic levels, market pricing, construction and operating costs”.The airport also reiterated its pledge to pay £1,000 a year towards the council tax of local residents affected by significant levels of aircraft noise and to maintain air quality levels within current legal limits.

Sir Roy added: “Choose Gatwick and any government can do so knowing that airport expansion will not be a drain on the public finances – and even more importantly it can actually happen.

“These guarantees give airlines and passengers confidence that they will not have to pay much higher air fares through higher airport charges.

“These guarantees also provide a progressive solution where those most affected by noise are directly compensated and the environment is protected. I believe that increased spending on noise mitigation and direct compensation for local communities must be an essential element of any plan for runway expansion.

“Both Heathrow and Gatwick have support. But after years of delay most people agree on one thing – something needs to happen.

“This is the first time Gatwick has been seriously considered for expansion, and only Gatwick can guarantee that Britain gets the runway it needs.”

http://www.travelweekly.co.uk/Articles/2015/03/11/53430/gatwick+vows+to+cap+landing+fees+for+30+years.html

 

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The “30 year contract”

Asked what this contact says, or whether it exists, below is what Gatwick senior management have said:

“The exact nature of the thirty year contract has yet to be finalised – its purpose would be to clarify the commercial and regulatory environment in which we would be operating, including the anticipated timing of any new runways beyond that granted to Gatwick. Whilst we understand that one government cannot bind a future government irreversibly, if there was a legal contract in place and the future proved different from that which had been committed to, the contract could also govern what might happen in those circumstances.

Make of that what you can !


 

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See also FT article at

http://www.ft.com/cms/s/0/1848050c-c6a0-11e4-a13d-00144feab7de.html?siteedition=uk#axzz3U4NCqzK5


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13.3.2015  (Gatwick Airport’s press release)

SIR ROY MCNULTY:

“The debate about airport expansion is entering a crucial phase in the lead-up to the Commission’s recommendation.

“However, after two years of debate with many facts, figures and key arguments put forward, it is easy to lose sight of the overall deal being offered by each option.

“That is why earlier this week, on behalf of the Gatwick Airport Board, we published five guarantees that crystallise the key commitments Gatwick are prepared to make on our second runway plans.

“We believe that airport expansion must provide a fair deal for everyone – to the Government, to airlines and passengers, to the local community, and to the environment.

“Yet these aspects have not been discussed nearly enough and we feel the balance of the discussion needs to change. So what is Gatwick’s offer?

1. FAIR TO TAXPAYERS – A PRIVATELY FUNDED RUNWAY READY FOR TAKE-OFF IN 2025  

  • To ensure airport expansion is fair to the taxpayer, we are strongly of the view that a new runway should be privately funded. We have full confidence that our plans will be privately financed without any Government subsidy meaning that by 2025, London would have a competitive airports system fit for a global city, all at no cost to the taxpayer.

2. FAIR TO PASSENGERS & AIRLINES – AIRPORT CHARGES CAPPED TO KEEP FARES LOW FOR EVERYONE

  • Our second guarantee is that in return for Government agreeing a 30 year contract, passenger charges will be subject to an inflation-linked £15 limit. This means fares would be kept low for all passengers – from cost conscious business travellers to hard pressed families – and would be fair to passengers and airlines.

3. FAIR TO GOVERNMENT – NO PUBLIC SECTOR RISK FOR GOVERNMENT TO CARRY

  • In terms of the delivery of a new runway, our view is that most of the risks should be borne by the airport promoter – not Government, not airlines and not passengers. Our commitment is to bear the long-term risks of the expansion programme which we believe is fair to Government.

4. FAIR TO LOCAL PEOPLE – CASH COMPENSATION FOR THOSE MOST AFFECTED BY NOISE

  • Our expansion plans affect far fewer people than alternative schemes but we still believe higher levels of spending are needed on noise mitigation and compensation. To ensure we are fair to the local community, our ground-breaking proposal (so far unmatched by other promoters) is to provide £1,000 yearly compensation towards the Council Tax of those people most affected by aircraft noise.

5. FAIR TO THE ENVIRONMENT – AIR QUALITY TARGETS ALWAYS MET

  • Our final guarantee is that air quality levels will remain within current legal limits in the area close to the airport and that (unlike Heathrow) this can be achieved without introducing a congestion charge. Gatwick’s location means that expansion is uniquely able to balance the economic growth we need with an environmental cost we can afford. We believe this is fair to the environment.

“Together these guarantees assure any Government that Gatwick expansion will not be a drain on the public finances and would deliver an economic benefit the UK needs at an environmental cost we can afford.

“Above all, our guarantees also show that Gatwick expansion is deliverable. After years of delay something needs to happen – this is the first time we have been seriously considered for expansion, and it is clear only Gatwick can guarantee Britain gets the runway it needs.”

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See earlier:

 

Gatwick’s main airline, easyJet, questions Gatwick case for 2nd runway and does not want to pay higher landing charges

Carolyn McCall, CEO of  EasyJet, the largest airline at Gatwick, has said passengers want expansion at Heathrow, not at Gatwick.  Ms McCall said easyJet is “quite concerned” at the prospect that Gatwick’s  landing charges would rise to pay for a 2nd runway.  They are having confidential talks with the airports on future charges.  EasyJet makes on average £8 profit per seat.  If Gatwick’s charges doubled from the current £9  to an average of £15 to £18 (or even up to £23) as predicted by the Airports Commission, this would hit EasyJet’s economics.  Ms McCAll said: “This whole issue of capacity should be about where the demand is. Airlines have to want to go into that airport, and the congestion we have is predominantly around the Heathrow hub. Passengers need to really value what this infrastructure brings, and if they don’t see any benefit it’s going to struggle.” A new runway risked emulating unpopular toll roads. “It will be years and years before [passengers] see any positive effect.”  As one of the UK’s largest and fastest growing airlines, EasyJet’s opinion will need to be given careful consideration by the Commission.

http://www.airportwatch.org.uk/2014/11/gatwicks-main-airline-easyjet-questions-gatwick-case-for-2nd-runway-and-do-not-want-to-pay-higher-landing-charges/

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The Airports Commission’s consultation document (Page 47) states that:

3.41

“Gatwick Airport Ltd has estimated, for example, that per passenger charges would
rise from £9 currently to £12-15 as a result of expansion. This is lower than the
charges predicted by the Commission’s analysis, which indicate average charges
rising to between £15 and £18, with peak charges of up to £23. As can be seen,
the Commission’s estimates show significant potential variation reflecting the
variation in passenger demand across its scenarios. In the upper end demand
scenarios, charges would be close to Gatwick Airport Ltd’s own estimates,
although still slightly higher, reflecting higher costs and a more conservative view
of how the infrastructure delivery might be phased. Conversely, the higher end of
the Commission’s predicted range of charges reflects lower estimated levels of
demand leading to peak charges above £20 (roughly the current level of charges
at Heathrow). “

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and.

A new runway at Heathrow or Gatwick would mean big increases in passenger fees – New report

10.3.2014   (Aviation Environment Federation)
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The Aviation Environment Federation (AEF) has submitted a new report to the Airports Commission. It casts doubt on the feasibility of building a new runway at either Gatwick or Heathrow.  So far there has been little realistic discussion about who will actually pay for the proposed runways.  The new study, “Who Would Pay for a New Runway” by Brendon Sewill, shows that a new runway at Heathrow would be likely to mean an increase in landing fees and other airport charges from £19 per passenger now, up to £31.  At Gatwick there would be a larger increase, up from £8 now to £33.60.   The study points out that with all the London airports separately owned, unlike in the days of BAA, the cost will have to fall only on the passengers using that airport.  If an expensive runway (and terminal) is built, the options are either that the passengers pay for it – or that it has to have public subsidy. A report for the Airports Commission, by KPMG, concluded that a new Heathrow runway would need a subsidy of around £11 billion, and a new Gatwick runway a subsidy of nearly £18 billion. However, the Government is reluctant to commit public funds, and new EU guidelines ruling out subsidies to major airports.  That leaves landing charges – will passengers put up with that, or vote with their feet by using cheaper airports? 
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