Heathrow Airport board approve submitting 3rd runway plan (with option for 4th) to Airports Commission
The board of Heathrow Airport Holdings is reported to have authorised its management to present its case to build a 3rd runway to the Airports Commission, in July. Heathrow is considering several options for the runway’s location. It wants the runway as soon as possible. Heathrow will also tell the Commission that they should have the option to build a 4th runway at some later date, if there is sufficient demand for it. Heathrow believes funders will be willing to stump up the £10 billion or so, with sufficient certainty of the returns on their investment. But some Heathrow shareholders are privately warning they could reassess their willingness to pay for a 3rd runway if the CAA enforces an effective cut in the airport’s charges to airlines over the next 5 years. Heathrow repeatedly emphasises that a huge hub airport is best for the airlines, as that enables them to be the most profitable. The Airports Commission has the task of ensuring that the UK retains its status as a key hub for global aviation, not merely catering for UK demand for air travel. The phrase “a world class airport for a world class city” is popular with the Heathrow lobby.
Heathrow finalises case for third runway
Heathrow’s board has authorised its management to present the case for adding a third runway to the independent commission looking at solutions to the UK’s airport capacity crunch.
Heathrow Airport Holdings’ board met this week to consider what the company should say to the commission chaired by Sir Howard Davies that is looking at options to increase airport capacity, notably in the south-east of England.
The commission has set a deadline of next month for submissions on how to increase capacity over the long term. (19th July).
“Our board gave approval for Heathrow to submit proposals for a third runway to the Airports Commission,” said a company spokesman.
Heathrow is considering outlining more than one option for where a third runway could be located, close to its current site in Middlesex.
It is expected to say a third runway should be built as soon as possible, because the airport is operating at near-full capacity. However, it is also likely to say Heathrow should have the option to build a fourth runway later in the century.
A third runway is due to cost at least £10bn, and some of Heathrow’s shareholders are privately warning they could reassess their willingness to pay for the infrastructure, after the Civil Aviation Authority proposed a real-terms cut in the charges the airport can levy on airlines during the period between 2014 and 2019.
Cutting Heathrow charges would be bad for passengers and bad for the UK
Despite much remaining to be done at Heathrow, things have changed. Six years ago its then chief executive said it was “held together by sticking plaster”. Passengers don’t say that now.
By Colin Matthews ( Chief Executive of Heathrow)
26 Jun 2013
£11bn of private sector investment has delivered an airport of which the UK can be proud. Earlier this month Heathrow was named the best large airport in Europe, while passengers have voted Terminal 5 the “world’s best terminal” for two years running. Next year our brand new Terminal 2 will open.
Success comes from working with airlines, so we were sorry to read International Airlines Group chief executive Willie Walsh arguing in The Sunday Telegraph that the time was right for the regulator to slash airport charges by 40pc, with inevitable consequences for passenger service. This would be bad for passengers and bad for the UK.
It would be a familiar British mistake to under-invest and make do just as we are starting to compete head on with the best airports in Europe. Passengers have been well served by our investment in Heathrow. The proportion rating their experience as very good or excellent has increased from less than 40pc to more than three-quarters. We should be setting our sights on matching the best hubs in the world, not declaring the job done.
The UK needs a hub airport to compete as an international centre for business and trade. The markets that are growing most quickly are those that are furthest away. We are in an international race for connectivity to emerging markets. Continuing to invest in our only global hub is the best way to stay ahead.
Willie Walsh argues that Heathrow does not face competition, but we do. Not only do we compete with other European hubs, we face fierce competition for international capital. The investors who have funded Heathrow’s improvement come from the United States, Canada, Spain, Singapore, China and Qatar. They are not philanthropists. They are looking for a fair return corresponding to the risk they are taking, often to fund the pensions of those for whom they invest. If the UK does not offer a competitive rate of return they will invest elsewhere. The regulator has a duty to set returns as low as possible so that UK passengers pay not a penny more than is necessary. They also have a duty to make sure the required investment can be financed. If they set returns too low, investment will dry up and we will all lose out.
The return on capital investment allowed by the regulator five years ago was 7.75pc, and then it dropped to 6.2pc. Since then Heathrow has made a pre-tax loss in every year and shareholders have received less than 1pc per annum return on their investment. That is unsustainable. Now the regulator is proposing to cut returns further to 5.35pc.
This has so spooked investors that some are reassessing not just investment in Heathrow but whether they would invest in other regulated industries in the UK, too. It also throws into doubt the ability to privately finance new runway capacity in the UK. The Davies Commission is currently considering options for new runways. Whether its final recommendations support a new runway at Heathrow or a new hub airport elsewhere, the level of financing required will be unprecedented. Why would anyone fund tens of billions of upfront investment in UK infrastructure if the lesson from history is that your return will be cut as soon as you’ve built it?
Despite the demands of their CEOs for lower charges, airlines want to fly from Heathrow because they make money doing so. IAG and others have paid millions to acquire additional slots at Heathrow. Willie Walsh has a duty to defend his shareholders and as our biggest customer I listen to him carefully. He is making it clear to his investors that British Airways makes good returns at Heathrow. We will carry on reducing our operating costs and our modernisation of the airport will deliver further cost-efficiencies to airlines.
Politicians have been asking for years for Heathrow to get better, and now we seem to be losing our collective nerve just as we are getting there. Let’s not turn back the clock by slashing prices and returning to the out-dated, under-invested Heathrow of the past. For as little as an extra £1 a ticket each year, passengers can have world-class facilities and Britain can have a world-class airport.
Colin Matthews is chief executive of Heathrow
Forget three runways, Heathrow needs four
Students of the interminable debate over Heathrow’s future will have permitted themselves a wry smile at chief executive Colin Matthews’ submission to the Davies Commission.
By Telegraph staff (Telegraph View)
17 May 2013
For years, every senior Heathrow executive has been extolling the virtues of mixed-mode operations – a system that allows airlines to use both runways for take-offs and landings and would add a very lucrative 50,000 flights a year.
Suddenly, however – in a conversion every bit as striking as Paul’s on the road to Damascus – Mr Matthews has abandoned the idea, having discovered that it has “an impact on local communities”.
Equally surprising is the proposal to end arrivals on both runways between 6am and 7am “in return for permitting an increased number of arrivals on one runway between 5am and 6am” – something Heathrow could have done years ago if it was concerned about the impact on local residents.
Of course, Mr Matthews is playing a much longer game. His softly-softly lobbying got the third runway back on the political agenda after the Coalition had fatuously ruled it out. Now he’s calculated that playing Mr Nice Guy might actually get it built. But even here, Heathrow is being disingenuous. Buried in Friday’s document was the line: “An additional runway at Heathrow would deliver sufficient new capacity for the foreseeable future.”
That’s only half the story because if Britain wants to rival Schiphol, Frankfurt and Charles de Gaulle it will need a four-runway airport. There’s no point building a third without a plan for a fourth.
Heathrow may prove the best place to develop that airport. It would be refreshing to see the company’s boss make the case for it.