Airlines clash over Heathrow regulation
Airlines have found themselves at loggerheads over the future of Heathrow, after one American carrier warned against the break-up of the owner’s monopoly even as others double down on calls for a new third runway operator.
According to a freshly published consultation document from the Civil Aviation Authority, Delta Air Lines told regulators that a ‘direct competition’ model could fail to improve operations at the west London hub, citing New York’s much-maligned airport as a cautionary tale.
The American airline, which uses the east coast airport as one sites, pointed to JFK’s well-documented issues as evidence that “models where multiple entities operate assets within an airfield may not be effective in generating competition”.
The warning stands in sharp contrast with the position held by the majority of Heathrow’s other carriers, which have been engaged in a frenzied lobbying campaign to improve competitiveness and bring down prices.
The likes of British Airways owner IAG and Virgin Atlantic, along with airline industry body Iata, have for years been outspoken critics of the current model, which allows owner Heathrow Airport Limited (HAL) to operate a monopoly.
Airlines push for monopoly break-up
Those carriers say the CAA’s current model for the west London airport is largely responsible for its track record as being the most expensive major international airport in the world – even before the costs of the third runway expansion are accounted for.
Instead, they are pushing for a regulatory shake-up that would allow rival firms to build and operate new infrastructure at the hub – including the planned multi-billion-pound expansion – in the hope a new operator keeps a lid on the budget of on the new project.
Proponents of the overhaul, which would pave the way for hotel magnate Surinder Arora’s competing third runway proposal being permitted, also believe it could help bring down costs elsewhere at the airport thanks to the added competition.
Heathrow has been dogged by accusations of overspending and gold-plating upgrades and infrastructure, the cost of which it can recoup by increasing the so-called passenger fees that it charges airlines. The refurbishment of tunnels under its two existing runways is running 10-years behind schedule and £500m over budget, while the cost of a project to replace Terminal 2’s baggage handling system is nearing £1bn.
According to the consultation paper, airlines including IAG and those part of the Heathrow Reimagined campaign to overhaul the airport’s regulation told CAA officials that a direct competition model was “essential to address” issues at Heathrow.
The carriers also lobbied for the watchdog to introduce a ‘transfer of ownership’ model, under which HAL could be forced to relinquish control not only on new project but also over assets it currently owns. IAG and Heathrow Reimagined argued the approach “allows for the greatest use of competition within the airport to drive significant consumer benefits”, the paper showed.
The CAA said on Thursday it would not pursue the transfer model unless “there is a material change in circumstances” at the hub – like HAL looking to sell an asset. But it added it would continue to work on plans for the direct competition model, which could see the third runway contract handed to a rival operator for the first time in Heathrow’s history.
Arora, the hotel magnate behind the bid, welcomed the CAA’s decision to keep exploring alternative models, including whether a new terminal could be owned and run by an alternative operator. “We have long argued that regulatory reform and the introduction of competition at Heathrow Airport is absolutely imperative to keep costs under control at the airport,” he added.
A Heathrow spokesperson said: “We support longer-term certainty, smarter incentives and independent expert assurance. It’s critical that the CAA keeps up momentum on putting in place a workable regulatory framework so that we can begin delivering the benefits of expansion at pace.”
Delta Air Lines was contacted for comment.