Heathrow hopes to be allowed to increase long-haul passenger charge from £38.33 to £67.86 in 2022
The Telegraph has obtained details of plans by Heathrow to increase its charges for long-haul passenger next year, by about £30 per person, up from about £38. Heathrow has massive debts, bad before Covid and far worse now. It has one of the biggest debt piles in British corporate history. Heathrow says it is not expecting more than a quarter of the number of passengers in 2022, compared to the number (81 million) in 2019 – so it has to increases prices. It has had to ask lenders for waivers on banking conditions, to avoid defaulting on its loans. Heathrow will have to get agreement from the CAA for an increase in costs, under its regulatory framework. The CAA is likely to decide on this in the next month, and it may not be favourable to Heathrow. The airlines are predictably angry. However, in order to reduce aviation carbon emissions, some demand reduction is needed – such as higher prices – though the government will not consider that. Heathrow is also planning a new levy on air cargo, to make more money. It is also planning to introduce a new lower noise level, to encourage less noisy planes.
Heathrow in dogfight with airlines over plans to double airport charges
Leaked proposals reveal that long-haul charges will rocket from £38.33 per passenger to almost £68 next year
By Oliver Gill, CHIEF BUSINESS CORRESPONDENT (Telegraph)
18 September 2021
Heathrow airport is locked in a dogfight with airlines over plans to almost double passenger charges as it grapples with one of the biggest debt piles in British corporate history.
Leaked proposals, seen by The Telegraph, reveal that long-haul charges will rocket from £38.33 per traveller this year to £67.86 in 2022.
Virgin Atlantic said the increase – along with a rise in other bills – would cost a family of four flying to Florida an additional £200. [That is probably not a lot, compared to the whole cost of their trip. It is only £30 more per person! AW comment]
Former British Airways boss Willie Walsh, now head of industry body Iata, said: “We’ve heard that inflation is coming back, but that is ridiculous.
“It is outrageous that Heathrow’s shareholders are seeking to recoup Covid losses at the expense of their airline customers. The UK’s air connectivity is the slowest-recovering in Europe and it cannot afford to be set back by even higher charges.”
Heathrow has been hit hard by a combination of the UK’s maligned “traffic light” Covid border system, and gross debts of almost £20bn.
With the airport expecting to welcome fewer passengers in 2022 than this year – roughly a quarter of the 81m in 2019 – bosses have had to ask lenders for waivers on the airport’s banking conditions to avoid defaulting on its loans.
A spokesman for the airport said: “Unfortunately, with fewer people travelling as a result of Covid, we now have no choice but to increase prices to keep the airport operating safely and efficiently.”
British Airways, Heathrow’s biggest customer, is also understood to have been left fuming by the airport’s plans to introduce a new “super low” noise level that cannot even be achieved by its fleet of the latest Airbus A321Neo jets.
It means that the UK’s flag carrier will be unable to access bigger discounts and forcing overall costs for short-haul flights up by more than 40%.
While BA declined to comment on the proposals, a spokesman for trade body Airlines UK said: “Heathrow’s proposed charges will have a detrimental impact on consumers – the majority of whom have been prevented from travelling for the last 18 months – and the post-Covid recovery of the entire aviation industry.”
Heathrow’s plans also include a new levy on cargo, which has provided a lifeline revenue stream for many airlines after their passenger services were grounded by Covid restrictions.
Corneel Koster, Virgin Atlantic chief operating officer, said: “A new cargo levy – that would effectively be a tax on trade.”
Heathrow’s boss, John Holland-Kaye, has previously claimed that the airport would “supercharge the Government’s ‘global Britain’ ambitions” by being a cornerstone of the country’s trade post-Brexit.
Mr Walsh said: “This cynical move by Heathrow highlights the hypocrisy of their claims.”
The prospect of increased charges will increase the cost of a holiday for many Britons seeking to escape after months stuck at home because of more stringent travel requirements than those on the European Continent. [By just £30. That is very unlikely to deter many. AW comment]
Earlier this month Ryanair boss Michael O’Leary warned that holiday prices are likely to rise sharply next year as fewer flights, inflation and higher taxes drive fares up.
The new price regime also risks deterring holidaymakers less than 48 hours after the Government’s controversial traffic light scheme was abolished.
The industry is now seeking support from the Civil Aviation Authority, which determines the overall level of profit that Heathrow can make under a complex regulatory framework.
Sources said that the regulator will announce its own proposals within the next few weeks. Industry insiders suggested that this could scupper Heathrow’s pricing plan.
A spokesman for Heathrow said: “We’re currently consulting with airlines and we welcome their feedback. We have reduced our prices by over 16% during the past 7 years, providing excellent value for money.
“Our proposal is balanced and represents an increase of around 4% to average ticket prices. The proposed changes will stem current losses and ensure we can deliver the level of service and reliability that our passengers and airlines expect.”
Heathrow losses now £2.9bn and consolidated net debt £15.2 bn
Heathrow has announced that its cumulative losses from the Covid-19 pandemic have hit £2.9 billion. In its results for the first half of 2021, Heathrow’s revenue dropped from £712 million in the first six months of 2020 to £348 million in the first half of 2021, which is 51.1% less than in the first half of 2020, and 76.2% less than the first half of 2019. Its pre-tax loss widened 18% to a little over £1 billion. It had 3.85m passengers, which is 75.1% less than the same period in 2020, and 90.1% less than the first half of 2019. Heathrow (it has a complex structure of numerous companies and levels) had consolidated net debt of £15.2 billion — not much less than the airport’s £16.9 billion regulated asset base (RAB), or the CAA’s proxy for its value. Heathrow had been allowed, by the CAA, to increase its RAB by £300 million, to £16.9 billion. Its chief executive John Holland-Kaye is using the half-year figures to warn about a covenant waiver on its various loans. The group of Heathrow companies has £4.8 billion of liquidity, (ie. ability to borrow) with average cost of debt just 1.64%.
Taxpayers face near £900m bill for Heathrow western rail link, if airport won’t pay
It was announced in September 2020 that the Great Western rail link between Reading and Heathrow would be delayed by up to two years. It was first proposed in 2012. A DCO application to construct the new line is not expected for some time. Heathrow was set to pay for much of the cost, as the link would benefit its passengers. But in April Heathrow withdrew its funding, because of the crisis in its finances due to the pandemic. Other funding from the private sector will be “much smaller” than previously envisaged. So it looks as if taxpayers may have to fund most of a £900m bill. The rail minister, Chris Heaton-Harris, told a parliamentary committee last week that he would recommend that taxpayers pay instead, as part of Chancellor Rishi Sunak’s spending review this autumn. Network Rail said that the Department for Transport had asked it to delay beginning the project by a year until the winter of 2022. It said it would not progress until there was a satisfactory financial arrangement, “including an appropriate financial contribution from Heathrow Airport Limited (HAL); this requires endorsement by the Civil Aviation Authority (CAA) as the relevant regulator.”
CAA rules that Heathrow can only raise £300m out of £2.6bn through higher charges, plus another £500 m
Heathrow’s bid to increase airport charges to recover £2.6 billion lost during the coronavirus pandemic has been rejected by the aviation regulator, the CAA – which said its expenditure had been “disproportionate and not in the interests of consumers”. The CAA is allowing Heathrow to initially raise only an additional £300 million through higher charges, out of the £2.6 billion it asked for. “The CAA has agreed to a limited, early adjustment to HAL’s RAB of £300m and will consider this issue further as part of the next price control (H7)” which starts on 1st January 2022. The CAA has agreed to allow Heathrow to raise charges to recover the £500 million “it incurred efficiently” on its plans for a 3rd runway, between 2017 and 1st March 2020. Heathrow said it faces loses of around £3 billion due to the Covid pandemic. IAG, which owns British Airways, the largest airline at Heathrow, said it is “extremely disappointed” with the CAA decision, which means more expensive tickets for its consumers from 2022. Heathrow wants concessions by the CAA, though its shareholders have earned nearly £4 billion in dividends in recent years.