Heathrow says it won’t raise landing charges while building 3rd runway – IAG not convinced that’s true
The main customer of Heathrow IAG, which owns British Airways, has been adamant that it will not pay exorbitant landing charges at Heathrow well before a new runway opens. Now in a last ditch attempt to win them over (and anticipating a decision by the government to back their 3rd runway) Heathrow is claiming it can keep landing charges down till the runway opens. Heathrow’ CEO John Holland-Kaye says: “Through the planning and build period, we can keep prices flat on average compared to today. …What that means is that there will be some years where they are going down, some where they are going up.” Whatever that means. IAG has feared that landing charges would rise from about £20 now to around £40 per flight. Heathrow already has some of the world’s most expensive landing charges. But Mr Holland-Kaye’s words did not impress IAG and the company said the average was calculated over a period stretching up to 30 years, and “Their figures cannot deliver their stated aim of making Heathrow and the UK competitive. ” Last week, Alex Cruz, chief executive of British Airways, urged Heathrow’s shareholders to finance the construction from their own funds, rather than by increasing charges to passengers and airlines. Heathrow’s 9 month financial statement showed increasing debt for the company, and a huge hole in the pension scheme.
Heathrow pledges to keep passenger charges unchanged during runway construction
British Airways’ owner IAG accuses airport of ‘ripping off’ passengers over runway costs.
By Dan Cancian
October 21, 2016 (IB Times)
Heathrow chief executive John Holland-Kaye has pledged to keep passenger charges flat even if the airport is granted permission to build a third runway.
The government will formally decide next week between Heathrow and Gatwick which airport should be given the green light to expand, but some airlines have voiced concerns over the impact of expanding the former.
In June, Willie Walsh, chief executive of International Airlines Group (IAG), the owner of British Airways and Heathrow’s biggest customer, accused Britain’s largest airport of “ripping off” passengers amid new runway plans, which he said could cost about £16.5bn ($20.2bn).
Walsh said such a move would result in passengers paying £80 towards landing charges per return trip, which is double the present charge of £40.
However, Holland-Kaye said the airport could afford a third runway without hiking per-passenger charges.
“Through the planning and build period, we can keep prices flat on average compared to today,” he was quoted as saying by the Financial Times. “What that means is that there will be some years where they are going down, some where they are going up. That is a very good position to be in.”
Per-passenger charges have been steadily declining over the past few years and are forecast to account for 68% of the airport’s income from air operations next year.
However, Holland-Kaye’s words did not impress IAG and the company said the average was calculated over a period stretching up to 30 years.
“Their figures cannot deliver their stated aim of making Heathrow and the UK competitive,” said the owner of British Airways and Aer Lingus.
Walsh has not been the only executive to be vocal about the impact of Heathrow’s proposed expansion. Last week, Alex Cruz, chief executive of British Airways, urged the airport’s shareholders to finance the construction from their own funds, rather than by increasing charges to passengers and airlines.
On Thursday (20 October), the airport reported a rise in profits for the first nine months of 2016 and claimed increased support for its plans to build a third runway.
The airport saw a 0.7% annual increase in the number of passengers passing through to a record high 57.3 million in the January to September period. Pre-tax profits climbed 11% to £202m, while revenue rose 1.2% to £2.09bn. [But this article omits to say that the 9 month figures also show that Heathrow’s consolidated net debt grew to £12.016 billion which was an increase of 2.3% from the same period last year, when it was £11.745 billion. Also their pension fund went from a surplus of £104 million on December 31st to a deficit of £370 million in just nine months — a £474 million loss. Their loss before tax was larger than the same 9 months a year earlier, at £293 million, compared to a profit of £552 million the year before. The accounts are not simple to understand …. but Heathrow’s finances do not look as good as Heathrow is trying to make out. See the recent 9 month figures.… AW note]
Heathrow’s dividends to shareholders grow, but profits have plunged, pension deficit grows, and net debt grows
Heathrow has released financial figures for the first 9 months of 2016, to the end of September. They show a drop in profits compared to a year earlier. There is a pre-tax loss of £293 million, compared to a £552 million profit in the same period in 2015, due to various exceptional items. Its pre-tax profit before these items — which include fair value gains and losses on property revaluations — showed an 11% increase to £202m. Revenue edged up 1.2% to £2.1bn. Heathrow’s consolidated net debt grew to £12.016 billion which was an increase of 2.3% from the same period last year, when it was £11.745 billion. Heathrow’s pension fund dropped from a surplus of £104 million on December 31st to a deficit of £370 million in just nine months — a £474 million loss. The company attributed this decline to “financial volatility” following the Brexit vote etc. If this size of deficit continues, Heathrow will be required to put more money into its pension scheme. The Sunday Times recently said that Heathrow and Gatwick had each spent about £30 million on advertising and promoting their runway bids. The 9 month accounts show £13 million on “intangible assets” (probably advertising etc) this year, and £11 million in 2015. They also show £32 million of Corporation Tax paid, and Dividends paid of £486 million so far this year; £289 million in the same period of 2015; and £380 million in all of £2015.
British Airways CEO confirms his airline will not pay exorbitant Heathrow fees to build new runway scheme
Alex Cruz, the chief executive of British Airways, (which is part of IAG) said the airline would oppose any move by its main airport, Heathrow, to raise its charges if it gets permission to build a 3rd runway. Mr Cruz said that although there was an “overwhelming case” for expanding capacity at Heathrow, this should not be at such high cost, and “Any notion that the cost will be borne by airlines is not acceptable.” He said that though IAG (BA produced about 75% of IAG’s 2015 profit), would not leave Heathrow altogether if costs were too high, it would look at expanding operations elsewhere. IAG also has hubs in Dublin and Shannon for Aer Lingus, in Madrid for Iberia, and Barcelona for Vueling – so it has lots of possible options. IAG does not want to pay in advance for the future runway and terminal, the extravagant design of which it has described as “gold plated.” Alex Cruz, like IAG boss Willie Walsh, was critical of a 2nd Gatwick runway, saying there was “no business case” for it, and “There is simply not sufficient demand from either customers or airlines….Experience shows that the majority of long-haul airlines that start operations at Gatwick either quit and leave London altogether or go to Heathrow as soon as possible.” Mr Cruz said that Heathrow’s shareholders should bear the cost of building a 3rd runway from the start. “Heathrow’s investors do pretty well out of its monopoly hub status.”