To IAG’s relief, Heathrow expansion to be delayed

The U.K.’s Civil Aviation Authority (CAA) has put a damper on the timing of expansion at London Heathrow, the country’s busiest airport. The CAA expects a third runway to open between early 2028 and late 2029, subject to planning permission, rather than the original target of 2026, saying a longer planning and construction period is needed to reduce upfront costs.

Following announcement of the delay, Zoe McLernan, policy manager at the U.K.-based Freight Transport Association, said, “While today’s announcement from the CAA will cause a delay to the new runway becoming operational, FTA is confident that, for the sake of UK trade, this will be only a short pause to allow stakeholders time to reflect and find a solution on charging and costs that works for everyone.”

The CAA decision is a Christmas gift, of sorts, to Willie Walsh, chief executive officer of International Airlines Group (IAG), parent of British Airways, the dominant carrier at Heathrow, with a major presence in the air cargo market.

Walsh had previously called on the newly minted government of U.K. Prime Minister Boris Johnson to commission an independent assessment of London Heathrow’s expansion costs. He has repeatedly railed against pre-construction costs that had been allocated prior to approval of the expansion.

But the CAA also gave the green light to spend up to  £2 billion on early construction costs before any planning permission is granted or the project’s final costs are known. The CAA’s decision was made before the election and without independent scrutiny, opponents charged, as the regulator based its decision on estimates provided by Heathrow Airport. IAG asserts the estimates have increased by more than 250% in the last two years.

Heathrow officials welcomed the decision to proceed, minimizing the delay. “It increases certainty for our local communities and for job creation, increased trade and lower airfares that expansion delivers. We will now review the detail to ensure it will unlock the initial £1.5 billion ($1.95 billion) to £2 billion of private investment over the next two years at no cost to the taxpayer,” the airport authority said in a statement. 

Heathrow officials have continuously lobbied to get the expansion as quickly as possible.  

The third runway is the main driver of expansion costs at Heathrow. Higher project costs would affect all airlines because Heathrow likely will try to recoup most of the money by raising landing charges, which airlines could pass on to shippers. 

The International Air Transport Association, which represents IAG and other carriers, favors a third runway, but is concerned the price is inflated and would make the U.K. a less attractive destination for people and goods. Airlines already complain that Heathrow is one of the most expensive airports in the world to operate at.

IAG-controlled airlines have a significant presence at Heathrow. British Airways cargo operations are dominant at Heathrow. Airport officials maintain that IAG’s objection to expansion stems from its aim to maintain that dominance.

A Sept. 12 report prepared by WPI Economics, an  economics and public policy consultancy, and commissioned by Virgin Atlantic, charges that IAG fills 55% of takeoff and landing slots at Heathrow. The next largest airline is Germany’s Lufthansa with 8% and the Virgin Atlantic/Delta alliance with 7% The report notes that the proportion of routes out of Heathrow on which IAG faced no competition has increased from 18% in 2005 to 39% in 2019.

Walsh has repeatedly charged that, while Heathrow continues to quote a figure of £14 billion for the required investment, he estimates the true cost at almost double that amount.

“We need a fresh look at the environmental viability and total cost of expanding Heathrow. The airport has a history of spending recklessly to gold-plate projects and paying guaranteed dividends to shareholders while minimizing the environmental significance of expansion,” said Walsh.

“Boris Johnson wants to make Britain more competitive. Allowing an expanded airport that is considerably more expensive than our European neighbors would be an own goal as we need to compete on the world stage,” Walsh said, referring  to soccer players who accidentally score for the opposing team.

IAG notes that Heathrow’s proposed early construction costs have risen from £650 million in April 2018, to £1.6 billion in later that year and £2.8 billion currently. Proposed planning costs alone have nearly doubled from £265 million in 2017 to around £500 million.