Airlines and hotel operators are advocating for a reform of Heathrow’s funding structure prior to any financial commitments being made towards the proposed third runway.
They are calling for a comprehensive reassessment of the regulations imposed by the Civil Aviation Authority (CAA) that dictate Heathrow’s pricing structure. The businesses assert that the existing model positions Heathrow as the priciest airport globally.
Without reforms, these businesses warn that the construction of the third runway may become financially unfeasible.
The CAA has expressed its intention to “carefully consider” the possibility of reviewing Heathrow’s economic regulatory framework.
A representative from Heathrow indicated that airport management has already communicated to both airlines and the government their intent to explore an alternative, long-range regulatory strategy for the third runway.
However, similar to other consumer products, users of a service or product are obligated to cover the costs associated with its provision, which is the current scenario.
Surinder Arora, chairman of the Arora Group, which operates 16 hotels and owns extensive property near the airport, supports expansion but harbors doubts about its realization.
In an interview with BBC London, he pointed out that Heathrow imposes excessive charges for numerous services.
As an illustration, Arora mentioned that he pays 2.62p per unit for water at the Renaissance Hotel located outside the airport’s boundaries, while at his Hilton hotel adjacent to Terminal 2, he is charged Heathrow Airport 23.27p per unit. These inflated costs are then transferred to his clientele.
He offered additional examples, such as the cost of removing three oak trees, which was billed at £76,000, and the exorbitant expense of a smoking shelter that he claims typically costs £20,000 to £30,000, but was charged to Heathrow at £1.1 million.
Heathrow officials contest these figures.
Arora contends that the regulatory framework enables Heathrow to set exorbitant prices for several services, including water, parking, and construction, operating as a monopoly.
“The existing monopoly at Heathrow not only significantly overcharges travelers on aviation fees but also on parking and various other services, keeping it well ahead as the costliest airport in the world,” Arora stated.
He expressed enthusiasm about collaborating with airlines to urge the CAA to scrutinize the regulatory factors contributing to such inflated prices and to promote competition that could enhance Heathrow’s offerings for passengers.
He emphasized that without necessary changes, the third runway would not materialize. “If circumstances remain unchanged, it simply won’t happen,” he asserted.
“Looking back over the last twenty years, they have never adequately completed a project on schedule or within budget.”
He critiqued the projected expenses for the project, which exceed £62 billion, while noting that Heathrow’s current valuation stands at £20 billion.
Their assertion involves increasing passenger traffic by 50%, with a call for customers to pay triple the airport’s current worth. Arora questioned how any business could sustain itself under such conditions, warning that sticking to the same model would ultimately lead to higher costs for everyone.
Nigel Wicking, CEO of the Heathrow Airline Operators Committee, echoed that all expenses inevitably fall onto travelers.
“Heathrow is swiftly lagging behind other international airports in terms of facilities and service for airline clients, while also holding the dubious distinction of being the most expensive for airport tariffs. This situation is unsustainable,” he said.
“The airline sector aims to provide travelers, both arriving and departing from the UK, a superior experience at Heathrow while fostering growth and minimizing the excessive costs frequently associated with Heathrow Airport Limited.”
The government has pledged support for a third runway, provided it can be developed within criteria for noise, pollution, and carbon emissions.
This week, Heathrow announced plans to seek planning permission by summer.
According to a Heathrow source, it is unrealistic to expect passengers to receive new runways and terminal facilities at no cost, as these will necessitate investments beyond the standard investment levels currently in place.
Heathrow is eager to implement a transparent procedure and collaborate with airlines, regulators, and governmental figures to establish a model that delivers the advantages of expansion for the UK swiftly, including lower airfares as a result of increased capacity.
Additionally, it highlighted that as part of the agreement, airlines are required to approve all expenditures, with the regulator ensuring that these are value-for-money.
Selina Chadha, group director for consumers and markets at the UK CAA, stated, “We have received a request to review Heathrow’s economic regulatory framework and will consider it thoroughly as part of our commitment to effective regulation.”
“Our primary focus will remain on serving consumer interests while fostering growth, investment, and efficiency.”
