BA hits back at Heathrow charge hike plans

British Airways has admitted being “extremely disappointed” at proposals to raise charges at Heathrow by inflation plus 4-8% each year between 2008 and 2013.

The airline wants rates to be increased no faster than inflation during the next five years with a lower cost of capital and greater operating efficiency.

The Civil Aviation Authority has proposed a lower cost of capital at 6.2% for Heathrow. But BA believes that BAA can make the infrastructure investment needed at Heathrow with a cost of capital set at 5.6%. The CAA says that it has assumed that BAA can achieve a 1% operating efficiency each year, according to BA.

The airline was responding to a CAA consultation on price controls for the BAA-owned London airports of Heathrow, Gatwick and Stansted which outlines charges and suggests the removal of price controls at Stansted.

BA pledged to lobby the CAA and the Competition Commission during the consultation on airport charges over the next year.

The carrier’s airport policy general manager Paul Ellis said: “Airport charges will increase by 50% during the current five year charging period yet passengers have yet to see an improvement in facilities and service.

“To advocate another 50% rise over the next five years cannot be justified.”

He added: “We welcome plans for improved investment at Heathrow but passengers deserve world class facilities and excellent service levels without a further hike in charges. The 1% efficiency improvement is not a challenging target and BAA should be pushed further and faster to become more efficient.

“We also believe that robust service quality standards should be backed by higher financial compensation payments to ensure that the investment delivers a better experience for passengers.”

A Vrgin Atlantic was also highly critical of the CAA proposals, saying: “At a time when airline’s face intense competition and a tough operating environment, we had hoped that the CAA would have sought tighter controls on the monopoly powers of BAA.  If these proposals are implemented then airlines and their passengers will again be called upon to pay excessive airport charges at Heathrow and Gatwick. 

“The CAA is offering no incentive for BAA to become more efficient.  For example the CAA has so far not clamped down on BAA’s poor handling of the security issues in August. Yet again with its proposals, the CAA is making the travelling public the principal loser.”

CAA economic regulation group director Dr Harry Bush said: “The picture emerging on efficiency is a mixed one. BAA often demonstrates very good performance; elsewhere, particularly in airport processes, there is still room for improvement.

“The CAA’s proposals represent a material – if still moderate – challenge to the company’s plans.

“Efficient and economic investment at BAA’s airports is critical for airlines and passengers. The CAA is alive to the need to continue incentivising BAA through a reasonable return on equity.

“However, lower borrowing costs and higher – if still cautious – gearing assumption suggest a marked reduction in the cost of financing Heathrow and Gatwick airports. Nevertheless, at Heathrow substantial levels of investment in the 2003-2023 period, and higher levels of operating expenditure and lower traffic growth than previously anticipated, will continue to put upward pressure on prices.”

Report by Phil Davies