Walsh says Heathrow charges rule out more UK domestic links, and he will not be told where to fly
Date added: November 23, 2016
Chris Grayling and the DfT were eager to point out how a 3rd Heathrow runway would increase links to the regions, and increase the number of routes from Heathrow from 8 now to 14 in future. And these links might have to be ensured by payments. Heathrow, in trying to persuade government this was possible, said it would create a new £10m Route Development Fund. The Airports Commission said there should be a Public Service Obligations on an airport-to-airport basis, to encourage these unprofitable routes. Now Willie Walsh has confirmed that there is “zero chance” of British Airways operating any new domestic flights from an expanded Heathrow. He will not be told, by government or an airport, where to fly. He says the high landing charges, inevitable to pay for the expansion, made it impossible to deliver an increase in domestic air links. He would refuse to run these links even if Holland-Kaye “begs me to do it” because it would not be profitable. He said Heathrow was “fat, dumb and happy” and that it attracted large numbers of airlines but that many failed to make a profit. He also said with a 3rd runway, Heathrow would price out most airlines. Holland-Kaye is hoping he can get easyJet, Flybe and BMI Regional to take on potential regional routes. Mr Walsh said the current charge of £40 for a return trip would double to £80 per passenger with a new runway.
Heathrow charges rule out more domestic links, says BA
High landing charges at an expanded Heathrow will make it impossible to deliver an increase in domestic air links, the head of British Airways parent company warned.
International Airlines Group chief executive Willie Walsh said there is “zero chance” of BA operating any new domestic flights once the London hub adds a third runway.
BA would refuse to step in even if the head of Heathrow “begs me to do it” because of the expense of operating out of Heathrow.
He told the Airport Operators Association’s annual conference in London that Heathrow was “fat, dumb and happy” and that it attracted large numbers of airlines but that many failed to make a profit.
Walsh has claimed that plans for a third runway would price out most airlines. Heathrow has denied this, insisting that it will attempt to keep landing charges as flat as possible when a new runway is built as early as 2025.
Heathrow chief executive John Holland-Kaye said it was negotiating with easyJet about moving to the airport.
He said: “From 2025, when the new runway opens, we can add more domestic routes and more frequencies as well as competition on existing routes.
“We have been working with easyJet, Flybe and, more recently, Bmi Regional on their potential route networks.”
Heathrow has links to eight UK cities but it said at least six routes would be created, including to Liverpool, Humberside, Isle of Man, Jersey and Newquay.
Walsh told how BA had increased its share of slots from 36% to 53% over the past 15 years after buying space from other airlines that had been forced to abandon the expensive hub.
He said the current charge of £40 for a return trip would double to £80 per passenger with a new runway.
Heathrow has denied this, insisting that it will attempt to keep landing charges as flat as possible.
Transport secretary Chris Grayling has said some of the additional routes created by an expanded airport would be ring-fenced for domestic flights.
But Walsh said he doubted that any airlines would be able to operate the routes and there was a “zero chance” of BA stepping in, The Times reported.
“We are not going to listen to any airport or any government telling us where to fly. None whatsoever. So we are not going to do it,” he said.
“If someone’s going to fly between Heathrow and Newquay, if it’s us, it will be done on a purely commercial basis. If John Holland-Kaye begs me to do it, I won’t do it. If he gives me £10 million a year, I’ll think about it.”
Bmi and Virgin’s Little Red had both attempted to operate domestic networks into Heathrow and it had been a “complete disaster”.
“It’s not going to happen unless there is a commercial reality behind it,” Walsh said. “We’re not interested in these artificial routes.”
“A third runway will also support new connections to the UK’s regions as well as safeguarding existing domestic routes. Heathrow has proposed a further 6 new routes to Belfast International, Liverpool, Newquay, Humberside, Prestwick and Durham Tees Valley to be added after expansion. The 8 existing routes offered today are: Edinburgh, Glasgow, Inverness, Aberdeen, Belfast City, Manchester, Newcastle and Leeds Bradford. This would provide 14 domestic routes in total, and spread benefits right across the country.
“Government will also take all necessary steps including, where appropriate, ring-fencing a suitable proportion of new slots for domestic routes, to ensure enhanced connectivity within the UK.”
“The third assurance is about how the expanded airport will benefit the whole of the UK, not just by creating jobs across the airport’s UK-wide supply chain, but by giving even more of the UK access to important international markets by strengthening existing domestic links and developing new connections to regions that are not currently served. The airport expects to add six more domestic routes across the UK by 2030, bringing the total to 14. That will strengthen existing links to nations and regions such as Northern Ireland, Scotland and the north of England, and allow the development of new connections to regions such as the south-west.
“I am determined that Heathrow will meet those pledges and that the Government will hold the airport to account on them. Furthermore, the Government will take all necessary steps, including, where appropriate, ring-fencing a suitable proportion of new slots for domestic routes through public service obligations to enhance connectivity within the United Kingdom. It is important to stress that this is a decision in the national interest; it is not just about the south-east of England.”
The decision to build a new runway at Heathrow is the right one, but it is absolutely vital that the Secretary of State delivers on his pledge to ensure that the benefits of expansion are felt in every nation and region of the UK. The Davies commission noted the difficulties in reserving slots for domestic flights from regional airports posed by the EU slot regulations. Now that the UK has voted to leave the EU what assessment has he made of the decision for potential measures to protect and enhance domestic connectivity?
The slot issue is one avenue for us to follow. We want to have a detailed discussion with regional airports, airlines and Heathrow itself about the best mechanism. I am absolutely clear that the planning consents, which I hope and believe will eventually be granted, and the national policy statements we prepare must contain provisions that protect connectivity. We need to work out the best way of doing it. It is not just about having a handful of slots at 11 o’clock at night; it is also about connectivity with international flights. We have to get this right for the whole United Kingdom and I give a commitment that that is what our agenda will be.
and Ian Murray (Edinburgh South) (Lab)
This is indeed the right decision for the UK and for Scotland, but will the Secretary of State confirm that any additional slot capacity for domestic airlines will be guaranteed either in the planning process or in legislation? Furthermore, will he undertake an ongoing assessment of the ability of regional airports such as Edinburgh to attract direct routes following Heathrow’s third runway coming on stream in nine years’ time?
We will look carefully at what the right mechanism should be. It might not be as simple as guaranteeing a number of slots, because I want there to be the right connectivity. For example, I do not want a regional airport to be given a tail-end slot at 11 o’clock at night that does not allow proper links between that airport and international destinations. We have to think carefully about how this should be done and what the best mechanism is for doing it. However, I have given a guarantee that there will be protections for the regional airports and the connectivity that they need.
“Heathrow already links eight cities to the world – Aberdeen, Belfast City, Edinburgh, Glasgow, Inverness, Leeds, Newcastle and Manchester. An expanded Heathrow would add flights to new domestic routes to Jersey, Isle of Man and Belfast International. [These are the routes EasyJet suggested it might add, if it started operations at Heathrow, with a 3rd runway. See below]
“Heathrow will be establishing a special £10m Route Development Fund, providing start-up support for new domestic destinations. This will support up to five new routes from Heathrow with airports like Liverpool, Humberside and Newquay on the shortlist.” [Newquay already has a PSO funded route to Gatwick. The Government’s Regional Air Connectivity Fund (RACF), is a £20 million fund set aside by the coalition Government, to pay for routes such as Newquay].
Heathrow also says:
“A third runway will lead to better connections from Wales to the rest of the globe – enhanced by the fast Western Rail Link that is backed by the Welsh Assembly.” [Scarcely a direct consequence of a runway …. Cardiff is not on the list of airports mentioned above. AW note].
Heathrow actually says that much of the connection to the regions will be by better rail links, getting people to Heathrow. [ link Page 12].
The Airports Commission realised it would be difficult to get regional links from Heathrow.
“Public Service Obligations could be used to support a wide network of domestic routes at Heathrow.”
and P 35
“It is crucial to ensure that expansion at Heathrow delivers benefits for all of the nations and regions of the UK
“A new northwest runway is likely to protect and bolster domestic services in and out of London leading to a rise in the number of passengers and frequency of services on the thickest routes, but more can be done to facilitate connections from the airport to an increased number of domestic destinations.
“To secure this, the Commission recommends that:
The Government should alter its guidance to allow the introduction of Public Service Obligations on an airport-to-airport basis, [AC emphasis] and use them to support a widespread network of domestic routes at the expanded airport.
“HAL should implement additional measures to enhance domestic connectivity, including reduced charges and start-up funding for regional services. ” [AC emphasis] ”
and P 78
” An important consequence of the airport capacity constraints in the UK is the apparent decline of domestic connectivity into the largest London airports and particularly into Heathrow.”….”Heathrow saw over 40,000 domestic flights in 1990 compared to just 23,000 in 2014″
and P 79
“A significant decline in the number of domestic routes into Heathrow has also been seen over recent years (see Figure 3.3). The Commission’s forecasts predict that, unless capacity is expanded, this pattern will continue, with the number of destinations served from Heathrow declining to as few as three by 2040. The primary reason for this reduction in domestic connectivity at Heathrow is that, with practically all the airports slots taken up, many domestic destinations are priced out by long-haul routes that deliver higher yields per passenger.”
and P 266
“The Commission’s forecasts suggest that with expansion more than twice as many domestic passengers will travel via Heathrow in 2040 than if the airport’s capacity remains constrained. In addition, to ensure that cities and regions across the UK can benefit from Heathrow’s enhanced connectivity, including areas such as the Highlands and Islands, the Isle of Man and the Tees Valley, which have lost their direct links to Heathrow over recent decades, the Government should use Public Service Obligations (PSO) to support a widespread network of domestic routes.”
and Page 313
“Heathrow Airport Ltd (HAL) should implement additional measures to enhance domestic connectivity, including introducing reduced charges and start-up funding for regional services.”
“Capacity constraints at Heathrow Airport have seen the number of domestic connections decline at the airport over recent years. No daily service has operated between Heathrow and Liverpool since 1991, Inverness since 1997 and Durham Tees Valley since 2008.”
and Page 314
“The new slots made available at Heathrow would allow airlines to establish new domestic links to the capital, re-establish lost connections and increase frequencies on those that are already in place. Heathrow Airport Ltd and easyJet’s consultation responses argued that were the low-cost carrier to move to the airport, it would seek to develop new services to Inverness, Jersey, Belfast International and the Isle of Man”. [So some of these potential future domestic links might depend on EasyJet? Which will resist the high landing charges necessary to pay for the 3rd runway? AW note].
“To support this point, the National Connectivity Task Force put forward analysis considering the latent demand for services from the UK regions to the capital, suggesting that in 2040 domestic services could utilise 136-175 additional daily slot pairs at an expanded Heathrow, compared to current day slot allocation of 55 daily 313 slot pairs. This would equate to 6.5% of runway capacity at the expanded airport being utilised for domestic services, up from 4.2% currently. ”
and Page 315
“15.7 Against this positive outlook, it is important to note that even in the event of expansion, a number of competing pressures may limit the increase in domestic services to an enlarged Heathrow. One such pressure could be continuing competition from overseas hubs, which may still be able to offer cheaper services, higher frequencies, or more convenient connections on some routes. An expanded Heathrow is also likely to see rapid growth in demand, which may relatively quickly begin to exert pressure on slots during the most popular periods.
“15.8 The Commission’s forecasts reflect these pressures and suggest that without specific measures to support domestic connectivity even an expanded Heathrow may accommodate fewer domestic routes in future than the seven served currently. It would still however see more than the three domestic routes predicted to be available from the airport without expansion. “
“Given the historic long-term pressures on the availability of capacity for domestic services at a constrained Heathrow, any stabilisation in the numbers of domestic services operating to the airport is to be welcomed. Nonetheless, the Commission believes that this should not be the limit of the UK’s or the airport operator’s ambition.
“15.10 In summary, a new runway at Heathrow will enhance the domestic connectivity of the UK, strongly benefitting the nations and regions outside London and the South East. In order to ensure that these benefits are widely spread and a diverse network of domestic routes is supported at the expanded airport, however, additional measures may be required. These are discussed in the next section of this chapter.”
There are considerable difficulties in setting up PSOs (Public Service Obligations) for routes, and there is no guarantee that the UK government would want to use public funds in this way, or would be permitted to within the EU. These routes could only be made viable if given public subsidy. Is this a good use of taxpayer’s money? (especially as only about 11% of UK flights in 2015 were for business, and the rest for leisure).