Passengers to foot bill for Heathrow third runway bidding process
Heathrow will be allowed to pass the vast bill it has racked up preparing its third runway bid onto passengers, the aviation watchdog has said, in a ruling that promises to extend the airport’s position as the most expensive in the world.
The Civil Aviation Authority judged that Heathrow Airport Limited (HAL) will be allowed to recoup the £320m it has already spent vying to win the megaproject contract by raising the fees tagged on to travellers’ air fares. Rival bidder Heathrow West was also granted permission to reclaim the £4.2m it has spent on its proposal so far.
The two operators have been jockeying to convince ministers to back their plan for the third runway, compiling vast planning documents and feasibility studies, while also enlisting the help of costly third party adivsers to build out their bids.
For incumbent HAL, that investment have already stretched into the hundreds of millions, the CAA said, with the hub previously arguing it needs cover its early costs if the expansion is to remain financially appealing.
Heathrow already world’s most expensive airport before third runway
In its ruling, aviation regulator said that without the design and planning efforts both bidders have put in to develop credible expansion proposals, the timely delivery of the third runway expansion would have been jeopardised. It added that both parties would need to demonstrate their claims have been independently scrutinised line by line in order to be able to pass on the costs.
“Our decision strikes a balance between supporting the delivery of benefits to consumers through timely progress on Heathrow expansion, whilst also protecting them from undue increases in costs,” said Tim Johnson, the UK Civil Aviation Authority’s director of consumers and markets.
“The costs Heathrow can recover are capped, independently scrutinised and subject to efficiency reviews, helping ensure that passengers only pay for efficient costs that are justified.”
Under the compensation scheme, which was decided after a consultation that took place last year, HAL will be granted permission to add 10p onto every passenger fare for the next 20 to 25 years. It will also be responsible for collecting Heathrow West’s less substantial costs, should the rival bid being spearheaded by hotel magnate Surinder Arora be unsuccessful.
The CAA made its decision in parallel to a root and branch review into Heathrow’s overarching regulatory model, in which it will decide whether rival operators will be allowed to own and operate major infrastructure within the airport. Airlines that use the hub have become increasingly restive over the sky-high charges they have to pass onto customers, and – in lockstep with Arora – some have set up a pressure group campaigning to overhaul red tape at the hub.
At £28.80, the airport’s charging fees are already the most expensive in the world, and are expected to rise by as much as £50 once the full costs of the third runway are included.
The CAA’s ruling on Wednesday will increase the airport charge per pessenger around 15 pence in 2028, rising to 30 pence in subsequent years. The bidders’ early costs are expected to roll off tickets in roughly 20 to 25 years.
A Heathrow spokeswoman said: “We have been clear from the start that unlocking the private investment that will deliver these benefits requires a supportive regulatory framework. We are carefully considering the CAA proposals and will make investment decisions accordingly.”