British Airways’ new chief executive on Friday urged the aviation regulator to block Heathrow airport’s attempt to increase its landing fees for airlines in order to claw back losses run up during the coronavirus crisis.
The UK’s largest airport is seeking the Civil Aviation Authority’s permission to increase the fees it charges airlines by 5 per cent to help offset a dramatic fall in flights after governments imposed restrictions on travel in the Covid-19 pandemic.
Heathrow already has some of the highest fees in the world, and the charges — the airport’s most important source of revenue — are typically passed by airlines straight to passengers in ticket prices.
The airport’s move to increase the fees has sparked a furious dispute with airlines including BA, Virgin Atlantic and United Airlines, which are nursing large losses because much lower numbers of people are flying during the pandemic.
Sean Doyle, who this month took over as chief executive of BA, part of International Airlines Group, said the CAA should reject Heathrow’s push to add £1.20 to the landing fee to offset the impact of the crisis.
At the start of this year the fee stood at £22.64 per passenger, and the regulator said this month that Heathrow had failed to make a convincing case to increase the expected level of the charge in 2022 by 5 per cent because of losses stemming from the pandemic.
“We would urge the regulator to stick to its position,” said Mr Doyle.
Airline groups including IAG have raised billions of pounds from their shareholders during the crisis, and want Heathrow’s group of largely overseas investors to share the industry’s pain rather than pass the losses on to carriers.
Luis Gallego, IAG chief executive, said Heathrow’s proposal to increase landing fees “does not make any sense”.
BA regularly clashes with Heathrow over the fees — typically about every five years when the CAA sets the level of the charges.
The UK flag carrier has long complained about the level of the fees and how Heathrow wants to increase them to help pay for a third runway at the airport.
But the stakes are now higher as the pandemic has ripped a hole in the finances of both companies.
IAG on Friday reported an operating loss of €5.95bn for the first nine months of the year, while Heathrow on Wednesday revealed it had been overtaken by Charles de Gaulle airport in Paris as Europe’s busiest hub by number of passengers.
With only a very limited number of flights coming in and out of Heathrow, the airport reported an operating loss of £746m for the first nine months of the year.
As a result, Heathrow’s bosses want to claw back £1.7bn of the £2.2bn of revenue they estimate the airport will forgo this year and next through increases in landing fees.
Heathrow’s executives are this weekend finalising new evidence to present to the CAA.
The airport argues that its shareholders, which include Spanish infrastructure group Ferrovial and Qatar’s sovereign wealth fund, have been attracted by a low-risk model that has been blown up by the pandemic, and that the company’s finances are tightly regulated meaning that unlike airlines it cannot just dial up and down prices at will.
Without raising landing fees, Heathrow’s owners warn billions of pounds of future investment at the airport is at risk.
Javier Echave, Heathrow’s finance director, said the regulator needed to “crack on” with approving an increase in landing fees and insisted the company’s operating licence allowed it to increase prices under exceptional circumstances.
“If the CAA is allowed to not enforce the rules of the game, it is terrible for consumers, but also sets a dangerous precedent,” he added, saying that international investors could end up turning their backs on UK infrastructure projects.
While the CAA is still considering Heathrow’s plea to increase its landing fees, the regulator has strongly rejected Mr Echave’s claim that it has a statutory duty to allow the airport to raise its charges.
It highlights how the spat between Heathrow, airlines and the CAA is turning into one of the bitterest since the airport was taken private by a consortium led by Ferrovial in a highly leveraged takeover in 2006.
Heathrow is already asking the regulator to be allowed to increase landing fees from 2022 to claw back £500m of costs related to its third runway plans, which were derailed in February by a court ruling that the £14bn project was unlawful on environmental grounds. Heathrow is appealing against the ruling.
Heathrow’s push to increase its landing fees has led airlines to raise new questions over the airport’s large debt load, which has allowed it to pay billions of pounds in dividends to shareholders.
Airlines have told the CAA they were particularly incensed by Heathrow’s decision to pay £100m to its shareholders in February, although the airport in its accounts noted this was before the impact of Covid-19 became clear.
One of Heathrow’s international shareholders, who declined to be identified, defended the airport, saying it had been able to invest billions of pounds into its facilities since it was taken private, and that its passenger approval ratings had gone up in that time.
Mr Echave said he was comfortable with Heathrow’s finances going into the crisis, adding the airport had £4.5bn in liquidity that could last into 2023 based on current passenger forecasts.