Heathrow lobbies against CAA cap

heathrow freight planesHeathrow has submitted an Alternative Business Plan to the Civil Aviation Authority which would allow its investors to put a further £3bn in to the airport.

This follows a survey of Heathrow’s passengers showing they are willing to pay more for an improved airport experience, despite the CAA’s decision earlier in the year to cap the fee increases the airport had proposed.

The survey forms part of the airport’s work on its business plan for Q6 – the regulatory period which covers 2014-2019 – and asked airport passengers their willingness to pay extra charges in return for further improvements to the airport1. Heathrow is proposing an investment of £3bn during Q6, one of the largest private sector investments in UK infrastructure.

The survey found that the average passenger at Heathrow is willing to see charges rise by £23 over the five year Q6 period in order to secure the improvements on offer. In its business plan, Heathrow is proposing a total increase in charges of £5.01.

Heathrow’s investment plans include the completion of Terminal 2 and the early works on extending the building; the development of a new integrated baggage system; and the construction of new taxiways and stands which will allow Heathrow to accommodate more of the most modern aircraft.

t2 queens terminalThe investment proposed for Q6 is in addition to the £11bn that has been invested in the airport since 2003. That investment includes the construction of Terminal 5, the new Terminal 2 due to open in 2014, new baggage tunnels and the refurbishment of Terminals 3 & 4.

The airport wants to continue the momentum it has achieved in passenger satisfaction, with it moving from the bottom to the top quartile of EU airports for passenger satisfaction. But they say that under the CAA’s current proposals that won’t be possible.

Every five years the CAA scrutinises the airport’s capital expenditure plans, operating costs and commercial revenues to set the maximum amount the airport is permitted to charge airlines over the coming period. Its initial proposals in April set the increase in charges at a level which the airport says would not allow Heathrow to compete on the global stage to attract investment. Under those proposals the airport would cut planned investment from £3bn to £2bn.

Heathrow has re-examined its original case and reduced its proposed annual increase in passenger charges in its new Alternative Business Plan from RPI+5.9% to RPI+4.6%. This has been made possible by increasing operational savings from £248m to £427m and by proposing a lower rate of return for shareholders. It now means the proposed increases are just £1 a year per ticket.

Colin Matthews, Chief Executive of Heathrow said: “Investors can choose to put their money anywhere in the global marketplace. The CAA’s current proposals will make it impossible to persuade them to put anything other than the bare minimum of capital into Heathrow. We know airlines want the improvements that we’re proposing and we have done everything possible to keep the cost of those improvements to an absolute minimum. The CAA has a duty to act in passengers’ interests – today we’re making clear that passengers want these improvements and are prepared to pay for them.”

The CAA will publish final proposals in October 2013 for consultation before coming to a decision in January 2014.

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