IAG urges UK PM Burnham to cap Heathrow fees as £49bn runway expansion looms
The owner of British Airways and Spanish flag carrier Iberia, the IAG Group, has made a last-ditch plea to incoming British Prime Minister Andy Burnham to intervene in the process that will determine how much the operator of Heathrow Airport is allowed to charge passengers ahead of a £49 billion expansion project. Earlier this year, the Labour government, under the premiership of Keir Starmer, approved Heathrow Airport Ltd’s third runway expansion over a rival bid by a consortium of private companies, including the Arora hotel group and backed by IAG, that wanted to expand Heathrow at a much lower cost. Heathrow Airport’s own plan will see the new third runway built over the M25 motorway to the west of the existing airport, along with new taxiways, terminal buildings, and other infrastructure. Heathrow says it’s aiming to secure planning permission by 2029 and have the third runway operational by 2035. But Heathrow’s owners have told the government that it will only fund the project if the Civil Aviation Authority allows it to raise its controversial passenger fees, which are already among the highest in the world. At present, Heathrow charges, on average, £26.57 per passenger on top of the airfare just to fly from the airport. In comparison, passenger fees at comparable rival airports average out at just £22.27. Between 2027 and 2031, Heathrow wants to raise its charges to £33.80, while airlines based at Heathrow, furious that they are losing passengers to competitors with lower airfares, want the CAA to cap Heathrow’s charges to just £23 per passenger. The argument presented by IAG is this: Heathrow’s funding model favors the airport going over budget because the amount of money it spends on the expansion project is directly tied to the so-called RAB funding model. If costs suddenly balloon over the project’s £49 billion estimate, the existing funding model would allow it to increase the passenger charge. Meanwhile, Heathrow has signalled that unless the CAA allows it to increase passenger fees, it will pull the funding for the third runway project, and the airport will remain operating at full capacity. The CAA appears to be sympathetic to IAG’s argument, but has decided not to recommend a lower flat fee as proposed. Instead, the CAA is leaning towards allowing Heathrow to increase passenger fees but making the airport comply with new cost overrun rules and competitive tendering for the project. If the current system continues, IAG chief executive Luis Gallego claims Heathrow’s development costs could swell to £100 billion within the next 25 years, resulting in passenger fees of £50 per person. “The solution is straightforward: a cap on affordable charges and introducing competition to better serve the needs of Heathrow passengers,” Gallego said on Thursday. “The incoming Prime Minister now has a defining opportunity to get Heathrow right: expansion delivered on time, at an affordable cost.” The CAA has recently finished a consultation on its proposed funding model for Heathrow and is expected to issue an update by the end of the month. Further work will then continue, and a second update isn’t expected until the Autumn. The date for when the exact funding model will be set has not yet been announced.