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Heathrow says caps on its prices will put global investors off funding UK infrastructure

Jim Armitage
·4-min read
A passenger at Heathrow (PA Wire)
A passenger at Heathrow (PA Wire)

Heathrow bosses today declared the aviation regulator’s refusal to allow it to increase the charges it levies on airlines could dent global investors’ appetite for supporting UK infrastructure spending.

Being in a quasi-monopoly position over the airlines which rely on it, Heathrow’s charges are controlled by the independent Civil Aviation Authority watchdog.

Earlier this week, the CAA rejected what it called a “disproportionate” demand from Heathrow to be allowed to put up charges 10% to help buffer the impact on Covid on its revenues.

Today, alongside figures showing total losses for the airport since the pandemic started of £2.4 billion, chief executive John Holland-Kaye said the CAA’s rejection would hammer investor confidence in Britain.

He said infrastructure investors accept low returns because their investments are deemed low risk.

“£2.4 billion of losses was not anticipated,” he said. “Because our prices are capped by the regulator on the upside, we need protection from the downside when times are bad.”

The CAA will reset Heathrow’s five year settlement at the end of this year and Holland-Kaye urged it to be more generous.

“This is not just important for us but for all regulated entities: infrastructure investments attract low risk-low return investors wanting to pay their pensioners in the long term.”

However, the abolition of Duty Free for non-EU travellers was a far bigger hit, he said.

Speaking a day after Dixons announced it was closing all of its airport shops, Holland-Kaye said the so-called “tourist tax” would cost Heathrow around £100 million a year in lost revenue that would eventually be passed on in higher fees.

The CAA considers all the airport’s income when deciding on price caps, so the loss of shopping revenue would be taken into account.

He said the Duty Free hit would cost Heathrow around £3 per passenger, dwarfing the £2 shortfall in the CAA settlement.

“We try to maximise our shopping revenue to keep charges down but all that is being undone by the massive impact of the VAT change.”

He also repeated his warning that the Border Force must increase staffing at arrivals gates when flights resume more fully on 17 May. New Covid forms require far more time consuming checks by Border Force.

“We’re currently seeing huge queues because there are only two Border Force staff on the desk, meaning there’s a six hour queue.

“Heathrow is currently seeing around 6-8000 people a day now. After 17 May that will increase 10 or 20 times. Border Force has to change quickly or there will be a stranglehold on passengers.”

An A380 with 500 passengers means a queue 1km long, he said. “If Border Force can’t process that then we will have to be directing those people to European airports and that’s completely unacceptable. That is why we are calling for more Border Force staff to be deployed.

“After all, they have not cut staff during the pandemic. We have 10% of the usual number of passengers coming through yet they have 100% staffing levels.”

Heathrow recorded a further £329 million loss in the first quarter of the year as only 1.7 million passengers travelled through the airport, down 91% compared to the same period in the pre-Covid year of 2019.

This brings total losses since the start of the pandemic to nearly £2.4 billion.

Cargo volumes were also down 23% on 2019, which Heathrow said underlined how a lack of flights impacts UK trade with the rest of the world.

Heathrow said uncertainty over government policy on the pandemic for summer travel meant it had slashed its passenger forecast for the year to 13-36 million against 81 million in 2019.

“As vaccinations are rolled-out and COVID levels fall, restarting travel to markets like the US will be critical to the UK’s economic recovery and we will be prepared to scale-up our operations as demand returns,” Heathrow said.

Airlines had complained about Heathrow’s demand to charge them more, but Holland-Kaye said they got higher returns from their operations at his airport due to the huge investment it has made in creating a good experience for passengers.

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