Heathrow says its investment plans are at risk if CAA limits its charges to airlines

The world’s busiest international airport sold Stansted in February for £1.5 billion, under the orders of the Competition Commission. But even stripping out the impact of the sale, Heathrow managed to turn last year’s £70 million loss into a £44 million pre-tax profit for the six months to end of June.

Revenues at the airport operator formerly known as BAA rose 9.2% to £1.15 billion, mainly thanks to income from airline tariffs jumping 15.7% in the six months.

Heathrow’s two runways already operate at full capacity but the airport can squeeze in more passengers as airlines fly fuller, larger planes, and it did: passenger traffic rose 2.4% in the six months, to 34.4 million. Most of the growth was driven by European traffic, which rose 4.9% to 14.3 million passengers. British Airways’ acquisition of bmi saw it axe some of the carrier’s routes to Africa, which hit flier numbers to the continent, but traffic to the Middle East, North America, Latin America and Asia Pacific all rose.

Heathrow chief executive Colin Matthews. Pic: Bloomberg Finance  Chief executive Colin Matthews said: “we want to continue that progress over the next five years, which is why we’ve submitted fresh plans to the Civil Aviation Authority for a further £3 billion of investment.” Those plans have faced controversy from airlines, however. As the CAA determines levies for the next five years, Heathrow wants aeronautical charges to rise by inflation plus 4.6% each year between April 2014 and 2019.

That’s lower than the 5.9% the airport put forward in February, but carriers including British Airways and Virgin Atlantic say it is too high. Heathrow has some of the highest aeronautical charges in the world; this year the CAA suggested they were cut in real terms.

The demands of airlines and the industry regulator to cut Heathrow‘s costs and landing charges are “extreme”, and would inconvenience passengers, Britain’s biggest airport has warned.

The airport’s boss, Colin Matthews, gave the warning after pre-tax profits for the first half of 2013 rose to £186m, from a £51m loss in the same period last year.

Matthews said Heathrow was on a “positive” track. He said: “Record passenger service scores, together with strong passenger numbers, is an encouraging basis for our financial results.”

Aeronautical income, or landing charges, rose 15.7%, a figure announced a day after Heathrow submitted new proposals to the Civil Aviation Authority (CAA) with almost £200m of extra cost savings in negotiations over the level of charges for the next five years.

Matthews said current proposals from the CAA to limit charges to below-inflation rises offered shareholders less than the market rate of return and involved “cost efficiency demands which are extreme”.

He said it was “unsurprising” airlines were pushing even harder for landing fee reductions. Describing Heathrow’s own cost-saving plans as “bold”, he said: “We need to be in the realm of what’s deliverable and realistic. We think the demands of the CAA and the airlines are beyond bold.”

Airlines have suggested Heathrow outsource jobs and slash pensions. Matthews said: “We need to look at every line item of cost, and employment is an important element. That’s what the regulator and airlines are challenging. Every business needs to look at every line item. But we think the demands of the airlines are over the top.”

Last week, Heathrow revealed plans for a third runway as part of its submission to the Davies commission. Matthews criticised Gatwick’s vision, announced on Tuesday, of a “constellation” of three two-runway airports around London.

The Heathrow boss said that if Gatwick’s case were correct, “you’d expect to see Stansted full today – but it’s not: it’s half empty”. In reference to Gatwick’s demands for genuine competition between the airports, he added: “It’s a funny sort of competition that you get by preventing your competitor from growing. If they’re really interested in competition, they would say [to] let Heathrow build a third runway.”