Pay more, get less at Heathrow

Given the service we get from BAA at Heathrow, presumably you won't mind inflation-busting price hikes...?

Last Updated: 31 Aug 2010

The Civil Aviation Authority said today that from April, BAA will be able to charge airlines £12.80 per passenger at Heathrow, a 23.5% increase on the previous figure of £10.36, and £6.79 per passenger at Gatwick, up 21% from £5.61. What’s more, in each of the next four years it can increase prices by 7.5% above inflation at Heathrow, and 2% at Gatwick.

Since the measure of inflation used by the CAA (the retail price index, i.e. the increasing cost of our shopping year-on-year) currently stands at about 4%, that means the price will be going up by about 11.5% each year at Heathrow. So by 2012, BAA will probably be charging about £20 per passenger – almost double the current amount. We’ve got a pretty good idea of who’s likely to be footing the bill for this, and we doubt it’ll be the airlines.

The increases are higher than the CAA originally proposed, so it’s clearly been convinced by arguments that BAA desperately needs cash to try and make the two airports slightly more appropriate to a First World country. Specifically, it cited the need to get security queues down to more manageable levels and to spend more money on building work – particularly at Heathrow’s Terminal Five. However, the airlines are hopping mad - BA was the first to vent its spleen today, saying the hikes proved that the regulator was not fit for purpose.

What's more, even BAA appears to be disappointed - a good indicator of its current financial woes. It wanted the regulator to let it make a 7.75% return at both airports, rather than the current levels of 6.2% at Heathrow and 6.5% at Gatwick – which would have made it slightly easier to manage its vast debt burden. But clearly the CAA decided the request was plane stupid – much to BAA’s chagrin. ‘The Review does not recognise sufficiently: the scale of the task we are embarked on; the pressures of handling such large infrastructure projects; the full cost of the increased security requirements; as well as the impact of the credit market turmoil,’ it grumbled this morning.

And you can’t blame BAA for sounding worried. In the next few years its owner Ferrovial has to refinance the £9bn debt package it borrowed to buy the company, while spending £4bn on improving the airports – and at the moment, nobody seems quite sure where the money’s going to come from. Which doesn't bode well for Heathrow and Gatwick - although some would argue that we've only got ourselves to blame for selling off our airports to an international investor whose only interest lies in making a decent rate of return.

Clearly not of all of BAA’s problems are of its own making, but while our airports remain in such a parlous state it’s unlikely to get much public sympathy. Especially now that we’re paying more for the ‘privilege’ of using them...

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