8 JULY 2013

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Article from BTNews 8 JULY 2013

COMMENT: Aviation crisis time

A lady not known for her outspoken views, Jane Middleton, Chairman of the Aviation Club, was forthright last week criticising the Airport Commission.  Jane could be fearless as she does not represent any airline, airport or interested party.  “How is it that the panel does not have a single airline economic expert on it”, she said, echoing the views of this publication.  Sir Howard Davies appears to be unconcerned regarding aviation representation according to those who have spoken to him.

“The one person with any airport experience is also Chair of the North West Rail Campaign”, she added. 

As one wag put it: “Why not form a committee of aviation experts to sort out HS2?  They can’t do worse than the present lot!” 

This Government is in clear danger of killing the Golden Egg that has made London the centre of the world for air transport.  Davies does not report until 2015 and then it is only a recommendation.

At least the major airlines recognise the problem and are getting together to try and do something about it, supported by the International Air Transport Association (IATA), acting on behalf of the many overseas airlines for which Heathrow is their most profitable route.

Air Passenger Duty (APD) is one thing but the rising cost of operating into Heathrow is just as serious.

British Airways, Virgin Atlantic and IATA (whose members include the vast majority of the 90 Heathrow carriers) said the CAA’s initial price proposals for the airport would add to airlines’ costs and undermine the services they could provide for customers.

Heathrow’s airlines calculate that charges could be capped as low as Retail Price Index (RPI) minus 9.8% without affecting the airport operator’s own investment plans.
 
The airlines noted independent analysis had shown that Heathrow was far more expensive than other hub airports such as Paris, Amsterdam and Frankfurt. 

They said Heathrow must tackle its own inefficiencies rather than be allowed to exploit its monopoly position at the expense of airlines and their passengers.
 
They called on the CAA to meet its new primary statutory duty to promote the interests of passengers.
 
In a joint statement ahead of the closing date for responses to the CAA’s initial proposals, Virgin Atlantic’s Chief Executive, Craig Kreeger, said: “These price proposals from the CAA have been wrongly greeted by some as good news for airport users, but in reality RPI minus 1.3% is far from a reduction in charges – in fact it would raise costs for airlines by an additional £600m.
 
“In the current economic climate, businesses across the public and private sector are making tough choices and delivering on reduced resource.
 
“Rather than protect airports from this, it is the CAA’s responsibility to ensure Heathrow’s behaviour reflects the commercial reality of the sector and wider economy”.
 
Keith Williams, British Airways’ Chief Executive, explained further: “Heathrow Airport’s charges have risen more than 300% in the last 11 years making it the most expensive hub airport in the world.
 
“As they stand the CAA’s proposals take an airport that is currently over-priced, over-rewarded and inefficient and allow it to remain that way for the next five years with ever increasing fees.
 
“The CAA has a new primary duty to further the interests of customers and a secondary duty to promote economy and efficiency on the part of the airport operator.
 
“We hope the CAA will meet these statutory obligations and reconsider its initial proposals as a matter of urgency”.
 
Tony Tyler, IATA’s Director General and CEO, said: “The CAA’s proposal to cap the level of charges at slightly below inflation is weak medicine for a major illness.  Connectivity is critical but the inefficiencies of the airport operator do it damage.  With some determination, prices could be reduced each year at a rate substantially below inflation.  That would be good news for UK businesses, travellers and shippers.
 
“Sadly, the management of the UK’s only hub airport is using its substantial market power to protect their comfortable monopoly business.  Instead of pursuing greater efficiency, they propose to enhance shareholder value by cutting critical planned capital expenditure necessary to improve the passenger experience and the operational resilience of the airport”.
 
The Heathrow response is that it intends to spend £3bn improving the airport, marking one of the largest private sector investments in UK infrastructure.  Included in the £3bn investment will be some “start-up costs” for the new Terminal 2 but specifics have not been announced.  Next week Heathrow unveils its plans for a new runway(s) which presumably is included in the cost.  Heathrow has contributed £100m towards the Crossrail project.

Presently the passenger cost for passing through Heathrow is just under £20 (double Gatwick).  This could go up to £27 by 2018.  And then add (APD)!

Somehow costs have got to be reduced and a compromise found.

For Business Travel News the solution is simple.  Do as New York does.  Let BA run T5, Star Alliance T2 and Skyteam T4.  Heathrow Airport Ltd would be left with T3.  They would all contribute to the main infrastructure and compete with each other.

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