It is difficult to imagine any aspect of the airline industry that the ongoing coronavirus pandemic hasn’t financially impacted. Airports themselves have also been far from immune from such problems. With less traffic being processed, this has caused a corresponding drop in revenue. However, London Heathrow Airport (LHR) is set to be able to negate some of these losses by increasing its airline fees on a limited basis.
Heavy losses last year
The Civil Aviation Authority (CAA), the UK’s regulatory body for aviation, has allowed London Heathrow Airport to up its fees. This move will assist it in recovering some of the heavy losses that it has incurred due to the coronavirus-induced travel downturn.
The airport has been hit hard by the pandemic, which has decimated long-haul routes in particular. According to Yahoo Finance, it lost more than £2 billion ($2.8 billion) last year due to the downturn. Although it currently has the liquidity to sustain itself until 2023, it also has to consider the costs of its expansion plans.
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Increased airline charges
As such, the airport had applied to recover around £2.6 billion ($3.9 billion) at the end of the year in the form of a Regulatory Asset Base (RAB) adjustment. This was in addition to an immediate £800 million ($1.1 billion) adjustment. It will recover these costs by increasing airline charges at the airport, beginning next year.
However, the CAA felt that this request was “disproportionate, and not in the interest of consumers.” As such, it has only granted Heathrow permission to recover £300 million ($417 million). It chose this lower allowance to “incentivize [Heathrow] to plan effectively, reopen its terminals in a timely way for a summer recovery, and generally invest to benefit its consumers.” However, despite the green light, the airport felt let down by the verdict, stating:
“The CAA has failed to deliver. This undermines investor confidence in UK-regulated businesses, and puts at risk the government’s infrastructure agenda.”
The world’s most expensive hub
The prospect of increased fees next year is not one that is being relished, particularly by the International Airlines Group. Of course, IAG owns British Airways. BA has an enormous presence at Heathrow, thus and would presumably bear the brunt of the raises.
It voiced disappointment that fees are to be raised at all, claiming that Heathrow is already “the most expensive hub airport in the world.” Indeed, aside from the fees themselves, even obtaining slots there can be an expensive matter. For example, Air New Zealand sold its Heathrow slot last March for a whopping $27 million.
According to Bloomberg, the initial increase in fees is set to represent £1.20 ($1.67) per passenger. When operating dozens of long-haul flights a day from the airport, this seemingly small raise quickly adds up for Heathrow-based carriers like BA. Interestingly, the airline’s CEO, Sean Doyle, commented on the importance of keeping the airport’s prices competitive yesterday. Speaking to Eurocontrol’s Aviation StraightTalk, he stated:
“I think we’ve got to realize that air travel is by its nature, competitive, and that we need to be competitive and Heathrow needs to be competitive as a hub. (…) So I think, coming out of the pandemic, value for money is going to be as important as ever. And I think, with the way demand may emerge as well, being competitive is going to be fundamental.”
What do you make of Heathrow being allowed to increase its fees to recover its losses? Will other airports follow suit? Let us know your thoughts in the comments.
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