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Heathrow wants to put up ticket costs to recover covid losses – and the Government agrees

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The Civil Aviation Authority is, astonishingly, allowing Heathrow to proceed with its claim to have its coronavirus losses repaid to it by the airlines via a levy on flight tickets.

Heathrow has asked the regulator for £2.8 billion to compensate it for the losses it has incurred due to coronavirus. The money would be paid to the airport by the airlines using it via an increase in ticket prices. British Airways passengers would be on the hook for roughly half, so circa £1.4 billion.

Whilst you would have expected the claim to be thrown out, the CAA is allowing it to proceed.

Heathrow Terminal 5

On Friday, the CAA – which is technically an independent regulatar and not a Government body – published this document (PDF) which says, basically, that it doesn’t know what to do.

The CAA said that the full £2.8 billion claim seems ‘disproportionate’. (The original claim was for £1.7 billion but Heathrow has now raised this by an extra £1.1 billion.)

This isn’t surprising when you remember that Heathrow’s entire turnover for 2019 was just £3.0 billion. The airport isn’t asking to be paid 11 months of profits – it wants to be paid 11 months of turnover.

The CAA has, however, extended its consultation period to (de facto) give the airlines more time to suggest how much they think they would like to hand over.

IAG, parent of British Airways, unsurprisingly believes that the sum should be zero. It points out that Heathrow has paid £4 billion in dividends to its shareholders in recent years, and as these include the Qatari and Chinese Governments they are not exactly strapped for cash.

Quoted in The Times, IAG said:

“It’s not fair nor reasonable to ask consumers to bail out Heathrow. It’s a wealthy, privately owned company which should seek funds from its shareholders, as many other businesses in our industry have done to weather this pandemic.”

Heathrow believes that a failure to make airline passengers bail it out will:

“undermine the perception of investing in the UK and the Government’s Global Britain agenda.”

Paul Smith, Director of the CAA, said:at the UK Civil Aviation Authority, said:

“In these exceptional circumstances we are persuaded that there are real issues we need to address to protect Heathrow’s consumers. However, in our view Heathrow’s proposals are not in the best interests of consumers. Although we propose to reject its disproportionate request, we are issuing a final consultation on whether a more limited and targeted intervention is warranted now or whether it is in consumers’ best interests to consider these issues as part of developing a new longer-term regulatory settlement, which will begin at the start of next year.”

IAG’s £1.4 billion share of the £2.8 billion, if Heathrow was successful in recovering the full sum it is claiming, would not be handed over in cash up front. It would be funded by an extra levy added to all British Airways flight tickets from Heathrow via an increase in the Regulatory Asset Base.

All other airlines using Heathrow would be in the same position, but clearly BA would be hit the hardest by a substantial margin.

The extended consultation period ends on 5th March.

Comments (82)

  • kitten says:

    “Privatised profits, public losses”

    Are our government such fools? They privatised assets, and allowed monopoly profits to be collected. Profits were siphoned off to shareholders including large contingencies of them abroad.

    Now there are losses and systemic events which the privatised monopoly businesses should have provisioned for, been prepared to ride through or restructure for and/ or insured against, the government is going to allow thosr businesses to abuse consumers ? Instead of doing the usual thing a commercial business is required to do – have recourse to the above and their shareholders?

    So the government lets them privatise profits and public-ize losses. This is stupidity, a lack of competence as a government, or graft.

    I always thought the CAA had no teeth and not up to the task so far as consumerd were concerned, and now I know.

    • Anna says:

      CAA don’t even seem able to tell BA to stop breaking the law on passenger rights!

      • kitten says:

        Exactly.
        CAA seem great at regulating the operational side of air transport – which they seem excellent at – but so far as I can tell they have never gained the intellectual capacity or strength to regulate markets toughky enough and haven’t stepped up properly to protect passengers (consumers).

        The markets side of aviation revulation needs CMA as final word and consumer protection in aviation needs to be removed from the CAA and assigned to a competent agency with b*lls immediately.

    • Track says:

      Exactly, instead HAL (Heathrow Airport) seemed to made zero provisions in fat times.

      They were allowed to rack up charges to 17-18GBP per passenger for use of airport.

      No one monitored their capital adequacy. HAL have been returning massive cash to private shareholders.

  • SteveD says:

    Surely the conversation should be something like this:
    HAL We need x billion pounds to keep going. Give it to us.
    CAA Or what?
    HAL We might go bust
    CAA And?
    HAL We’ll demolish all the buildings and dig up the runways so no one else can use them afterwards!
    CAA You won’t though will you?
    HAL (sulking) No
    CAA Do you mean your shareholders will be wiped out and they might be a bit miffed about it?
    HAL (more sulkily, staring at own shoes) Yes

    Seriously what’s the worst that can happen? Some short term disruption while an administrator sells the business on?
    And what’s most likely? More capital is raised so existing shareholders or lenders don’t lose it all. Call their bluff.

    • JDB says:

      @SteveD – I assume this is a joke. The public discussion that is ongoing between HAL and the CAA is a standard procedure for all regulated utilities and you can read the CAA’s latest report on its website. The regulated entity wants higher charges (via a higher RAB) and the airlines don’t. The CAA which has already consulted on this once, will listen to all the arguments, and the information from the current consultation and make a decision in the summer in respect of the exceptional circumstances. There is also the next 5 year review to be considered.

      • SteveD says:

        Oh sorry I thought that’s how all business was conducted. Glad you put me straight.

        I thought we were discussing the merits of Heathrow’s claim. But as there’s ‘nothing to see here’ until the summer I guess we can all shut up and go back to how well Beardy and Ernie are getting along this week. As you were.

        • JDB says:

          I think you missed my point, which was to the extent that we were discussing the merits or otherwise of Heathrow’s claim, your post was written without the benefit of the information contained in the report which sets out the regulatory background, the claim by HAL for regulatory relief, the opposing views from airlines and the regulator’s initial views. It is a complex situation that many commentators / armchair experts are opining on today without actually considering the full facts / detail which are publicly available. I am not offering a view either way, but it is incredible to read quite so much uninformed opinion criticising HAL, CAA, government etc. based on zero knowledge.

          • JDB says:

            PS. I apologise to those few commentators (they know who they are!) and Rob who do understand the complexities of utility regulation who have made useful a d considered contributions today.

          • SteveD says:

            Well obviously my original post was rather glib, and doesn’t acknowledge the complex regulatory process and technical arguments being made, but on this issue the underlying question is quite simple:
            How much money will flow and from where? Whatever, the technicalities, that is how you distil it.

            The CAA will make a decision. The ramifications for the consumer, the public purse, possibly both, could be significant. At that point the decision will need to be justified. Joe public is unlikely to be interested in the detail.

            Many readers may be indifferent, or be content to assume that the issue is so complex and specialised that whatever the outcome it must be the ‘right’ one as theyre in no position to argue.

            But I wonder if they’ll continue to think that if one result is that a standard RFS become £44+ the avios. Not suggesting that will happen but it is a reasonable end point in the decision tree.

          • Track says:

            From a pleb member of uninformed public: will be voting with my feet, avoiding Heathrow flights/unnecessary flights, even after the return to semi-normality.

      • Track says:

        Except that CAA turns out to be not as competent authority.

        We need a consumer watchdog in aviation, not porter service to the industry.

    • kitten says:

      🙂

  • will says:

    If HAL had been prudent and paid minimal dividends then you could argue that it needs help.

    When you’ve paid out billions in dividends it’s not difficult to demonstrate that had it been run without those dividend payments then it would not need to seek more money now.

    Companies have very much got used to getting the begging bowl out only to distribute profits very eagerly at the first opportunity.

  • zayn says:

    will they convert our 2 for 1 vouchers for this year into cash. So we don’t have to Fly with BA

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