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Passengers willing to pay for further improvements at Heathrow

July 25, 2013 Airport No Comments Email Email
  • Passengers say they would rather have better services than cut investment and keep prices down
  • Passengers willing to pay more than four times the increase Heathrow is proposing
  • Heathrow increases operational savings to £427m
  • New proposal to CAA puts annual increase at £1/ticket
  • Heathrow shareholders willing to invest £3bn if CAA settlement is fair

T2 check-in with peopleA survey of Heathrow’s passengers shows they are willing to pay for investment to further improve the airport – and that they are prepared to pay more than Heathrow is proposing. Heathrow’s Alternative Business Plan, which it has submitted to the Civil Aviation Authority (CAA), makes efficiency savings totalling £427m, putting the increase in charges at less than a pound a year per ticket. At this level investors would invest £3bn to further improve the airport.

The survey forms part of the airport’s work on its business plan for Q6 – the regulatory period which covers 2014-2019 – and asked airport passengers their willingness to pay extra charges in return for further improvements to the airport1. Heathrow is proposing an investment of £3bn during Q6, one of the largest private sector investments in UK infrastructure.

The survey found that the average passenger at Heathrow is willing to see charges rise by £23 over the five year period2 in order to secure the improvements on offer. Heathrow is proposing a total increase in charges of £5.01, meaning airport charges make up just 5% of the average ticket price.

Heathrow’s investment plans include the completion of Terminal 2: The Queen’s Terminal and the early works on extending the building; the development of a new integrated baggage system; and the construction of new taxiways and stands which will allow Heathrow to accommodate more of the most modern aircraft.

The investment proposed for Q6 is in addition to the £11bn that has been invested in the airport since 2003. That investment includes the construction of Terminal 5, the new Terminal 2 due to open in 2014, new baggage tunnels and the refurbishment of Terminals 3 & 4.

We want to invest to continue the improvements passengers have seen in recent years. We know the proportion of passengers rating their journey as ‘very good’ or ‘excellent’ has increased from 48% in 2007 to 74% today. The airport has moved from the bottom to the top quartile of EU airports for passenger satisfaction and Terminal 5 has been voted the world’s best airport terminal for the last two years. We want to maintain this momentum and give the UK a hub airport it can be truly proud of. Under the CAA’s current proposals that won’t be possible.

Every five years the CAA scrutinises the airport’s capital expenditure plans, operating costs and commercial revenues to set the maximum amount the airport is permitted to charge airlines over the coming period. Its initial proposals in April set the increase in charges at a level which would not allow Heathrow to compete on the global stage to attract investment. Under those proposals there would be no choice but to cut planned investment from £3bn to £2bn.

However, Heathrow has re-examined its original case and reduced its proposed annual increase in passenger charges from RPI+5.9% to RPI+4.6%. This has been made possible by increasing operational savings from £248m to £427m and by proposing a lower rate of return for shareholders. It now means the proposed increases are just £1 a year per ticket.

Colin Matthews, Chief Executive of Heathrow said:

“Investors can choose to put their money anywhere in the global marketplace. The CAA’s current proposals will make it impossible to persuade them to put anything other than the bare minimum of capital into Heathrow. We know airlines want the improvements that we’re proposing and we have done everything possible to keep the cost of those improvements to an absolute minimum. The CAA has a duty to act in passengers’ interests – today we’re making clear that passengers want these improvements and are prepared to pay for them.”

The plans seek to strike the right balance between continuing to invest for passengers and keeping charges at a level that is affordable for airlines. The level of charges at Heathrow is also tightly linked to the historic level of capital investment in new facilities.

Heathrow’s business plan needs to deliver a fair return to shareholders to encourage future investment in the UK. Our Q6 plan includes a capital investment programme of £3 billion, a tariff increase of RPI +4.6% and an average maximum allowable charge per passenger of £23.68 over the five year period. The detailed figures in Heathrow’s Alternative Business Plan are set out below:

2011/12 prices 2014/5 2015/6 2016/7 2017/8 2018/9 Average / total for Q6
Capital Expenditure (£m) 602 699 639 521 552 3,013
RPI + ‘X’ 4.6%
Price per passenger (£) 21.71 22.70 23.64 24.61 25.72 23.68
Passenger numbers (m) 70.1 70.8 71.5 72.3 73 357.8

The CAA will publish final proposals in October 2013 for consultation before coming to a decision in January 2014.

We believe Heathrow’s plans represent good value for passengers, airlines and the UK as a whole. Our investment will deliver a better journey for passengers, more efficient and reliable infrastructure for airlines, and additional jobs, trade and economic activity for the UK.

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