Heathrow cuts domestic landing charges – but will fares follow?

In a surprisingly low key move, Heathrow Airport reduced the Passenger Service Charge on domestic flights on 1st January.

The cut is a sharp one, although at the same time you might be surprised at how high the fees remain:

Point-to-point departing domestic passengers are now charged £19.13, a reduction of 35%

Passengers transferring to a domestic flight are now charged £14.35, a reduction of 35%

The airport calculates that passengers flying to Edinburgh will gain the most, with £6.2m saved each year.

However …..

There is no guarantee that lower fees will result in lower fares.  Logically there is no reason why they should.  British Airways currently has a monopoly from Heathrow on domestic routes.  If it can fill those planes charging its current fares, why should it bother reducing them?  It makes more sense for the airline to pocket the extra £7.75 – £10.35 per passenger.

(BA would argue that it does face competition, from trains and from flights from other London airports.  My personal view is that for most passengers it would take more than £10 to persuade them to change their existing preferred routing.  I live 35 minutes from Heathrow on a quiet day so it would need to be one heck of a saving before I would head out to Luton or Stansted to get a domestic flight.  Similarly it would need to be a pretty chunky saving before I would want to spend hours on a train to Scotland compared to sitting in a BA lounge and then hopping onto a short flight.)

Things are likely to change in March when Flybe launches domestic services on the Heathrow to Edinburgh and Heathrow to Aberdeen routes (see the Flybe website here).  As I wrote here, these services will use the slots previously taken by Virgin Atlantic for its now defunct Little Red operation.  This is what is likely to spur BA to reduce fares, not a cut in the Passenger Service Charge.

Even if Flybe makes a success of these two routes, it has zero possibility of expansion at Heathrow.  With Oman Air paying $76m to Kenya Airways for a landing slot last year – with some additional sweeteners on top – Flybe certainly isn’t going to be picking up any additional routes in a hurry.

What we may see is British Airways moving some aircraft and landing slots from European flights to domestic.  The airline now has a cost base which is up to £10 per person lower when flying to, say, Birmingham instead of Amsterdam.  If it could get the same average fare per available seat, and if all other costs were the same (which obviously they aren’t), it would be generating an additional £1,000+ profit per flight.

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