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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)

  • Not in My Name says:

    shaft the passenger not the shareholders. Its times like these that make me feel grateful that heathrow has been brought to its knees somewhat.

    For once I agree with BA. Ask the shareholders for the cash.

    • insider says:

      It’s great for LHR. They get their £2.8bn of revenue lost, whilst having significantly cut their costs in 2020/21 through furlough, shutting terminals etc. They’ll be able to pay a huge dividend to their Qatari, Chinese, Canadian, Spanish, Singapore, US shareholders

  • Jacqueline says:

    It is an unbelievable imposition on already beleaguered would be travellers. How dare Heathrow even suggest that people, already hard hit by the rigours of a pandemic, bail them out. It is the usual sad, tedious story of a fat cat company avoiding it’s responsibilities and passing the buck onto the ‘little people’. It’s all too easy, especially when the CAA go along with this entirely dishonourable idea.

    • insider says:

      the CAA have always been captured to some extent by Heathrow, they are just too worried that the team of lawyers Heathrow have will bury them. Heathrow’s one-trick pony argument is that airlines are making super profits because Heathrow is a constrained airport, so increasing airport charges will just erode the airlines’ profits, with no impact on the consumer….hahaha

      • insider says:

        although to be fair to the CAA this time, they have not followed Heathrow’s demands, and are actually indicating against it if you read the fine print

    • Wally1976 says:

      Totally agree but you can’t blame Heathrow for asking. If they can get away with it, they will.

    • kitten says:

      gotta say the relationship of some regulators and their industries is looking too close and the CAA is looking like one of them.

  • BJ says:

    SCANDAL 2!

    … what a depressing start to the day 🙁

  • Anuj says:

    Seems like yet another case of privatise the profits and socialise the losses. Companies want all the risk of doing business saddled on the government or us

  • Brian says:

    I’d agree with the below but I’m not finding this even remotely “astonishing” as that’s how things tend to work.

    “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.”

  • southlondonphil says:

    If you break down new Heathrow fairs using ITA Matrix they’re ALREADY pricing in an extra £8.90 a ticket for something called ‘Exceptional Regulatory Charge (R1)’ which applies to all Heathrow departures, so have they ‘jumped the gun’ ahead of the final consultation decision or is this yet another scalping by HAL for some other amount of subsidy they think they’re owed?

  • pigeon says:

    All totally fine by me, though I want 30 years of air tax refunds for every year LHR made a profit.

  • Dance-Ace-Base says:

    “undermine the perception of investing in the UK”

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