British Airways welcomes plans to cap charges at expanded Heathrow

A British Airways airplane approaches landing over houses close to Heathrow airport in London, Britain, on Oct 25, 2016.
A British Airways airplane approaches landing over houses close to Heathrow airport in London, Britain, on Oct 25, 2016. PHOTO: EPA

LONDON (REUTERS) - The chief of British Airways-owner IAG welcomed Britain's commitment to cap airline charges in its plans to build a new runway at Heathrow.

Britain on Tuesday (Oct 25) gave Heathrow the green light to build a new US$22 billion (S$31 billion) runway, ending 25 years of indecision. Under the government's plans, the new runway will be open for flights from 2025.

In choosing Heathrow, the government said that the British aviation regulator would work with the airport and the airlines to ensure the new runway plan is affordable and keeps landing charges per passenger that are paid by airlines close to current levels.

 

That condition was welcomed by IAG CEO Willie Walsh.

"The Government's directive to cap customer charges at today's level is fundamental," Walsh said. "We will be vigilant in ensuring that Heathrow does not raise charges to benefit its shareholders to the detriment of the travelling public."

 

British Airways is Heathrow Airport's biggest airline, accounting for more than 50 per cent of the available take off and landing slots.

Walsh has long said that British Airways would look to expand elsewhere if building a bigger Heathrow meant higher fees for its customers.

IAG will face more competition at Heathrow when the additional capacity becomes available, a development which RBC analyst Damian Brewer said British Airways would need to adapt over the next ten years.

"For IAG's BA this will mean a need to orientate its cost base closer to market levels, that is reduce costs, and also do this while at the same time becoming more competitive on perceived quality," the analyst, who rates IAG "underperform"said in a note.

Amongst those looking to gain a foothold at Heathrow once it is expanded is rival airline easyJet. Currently the pair mainly compete directly at Gatwick Airport, as easyJet does not fly from Heathrow.

easyJet on Tuesday repeated that it plans to operate from a bigger Heathrow, which it said would mean lower fares for short haul passengers through increased competition.

Shares in IAG, for which British Airways makes up three-quarters of its profit, closed down 0.7 percent at 401.8 pence, lagging Britain's bluechip index which closed up 0.5 percent.

Europe's biggest budget carrier Ryanair, has meanwhile called for London's three biggest airports, Heathrow, Gatwick and Stansted, to all be allowed to build new runways to maximise competition and ensure lower fares.