Another runway at Heathrow

[Fairdealfrank]

BA and the third rwy

BA is against a rd runway
BA drops bombshell on Heathrow?s third runway | The Times

BA and LHR need each other, both are joined at the hip. BA have nowhere else to go and LHR needs a large hub carrier to be based there. Expect that there will be some sort of accomodation. There is a deal to be done.

Not going to help LHR's case one bit. Think Willie is scared of easyJet

Not necessarily, unlike AF, LH, AA, DL and US, he ain’t scared of the ME3 and welcomes their competition. Could it be the same for U2? As mentioned above he has VY as an "attack dog".

What Willy W is really saying, as it appears the only way the R3 project is going to be financed is by a hefty chunk from the airlines, then as BA has 50% of the LHR movements then ego 50% of the airline cash is required from BA. He has said repeatedly he will not be putting money into the project. So it will have to be government money, have they any?

Not really a problem, it will be passed on to pax (by all LHR carriers) and they will swallow it, because as we all know, pax, especially premium pax, want to be at LHR.

No such guarantee would exist if it was LGW charging pax for a new rwy.

Probably a negotiating ploy by Willie Walsh.

A very significant percentage of BA traffic is actually inter Europe point to point and the current disruptive forces of flexible fares operators including Eayjet pose more threat to BA than even the ME3 and competing alliances via their own hub and spoke systems in the London markets.

Easy jet are no mino to be ignored -
In fact IAG know threat very well and Vueling are the tool to attack and destabilize this market.

Exactly, expect a huge presence of VY at LHR once U2 move in.

I think the point that anothertyke was making is that ultimately it's the consumer that pays HAL's charges, through air fares.

Clearly, but isn’t that the case at all airports? This is why governments jump on the bandwagon with the likes of APD.

Easyjet tend to shy away from pressure quickly and at LHR you and themselves would be mistaken if only EZY will enter LHR, EZY will have their own fight at LHR not just with BA. Didn't take long to drive them out o Rome or at least a big slice of operations and be sure FR and Vueling will be there as well and FR may say no now but it will happen.

Fair comment, maybe add BE and BD regional to the list, but don't think we'll see FR at LHR. LHR can't provide quick enough turnarounds and taxiing times would be too long and LHR won't provide a dedicated no-frills terminal. Same as CDG and FRA which are also no-go airports for FR. U2 and BE are very different operations.

[BasilBush]

One of the interesting things about R3 (if it happens) will be the impact on air fares ex-LHR. BA are focussing solely on the higher airport charges, believing that these will result in higher air fares. But it's more complex than that - the major increase in slots and capacity will massively increase competition, and the result is likely to be downward pressure on air fares. EasyJet have pointed this out in their submission to Davies, believing that (even on short haul) competition will outweigh the impact of higher airport charges.

Previous studies have consistently shown that yields ex-LHR are materially higher than at, say, LGW. This is only sustainable due to the current high barriers to entry at LHR, reflecting the shortage of slots. Otherwise competition would drive down yields (and increase efficiency of the incumbents).

That's really what BA is scared of - losing their premium yields that result from their dominant market position. And, of course, finally having to address the problem of their high cost base and inefficient ground operation. Expect strikes, especially if BA's preferred solution is to increase VY's presence at LHR.

[anothertyke]

FdF-- could you elaborate on your concept of accommodation. As I see it, if the project costs £20bn entirely funded by the air traffic, HAL will need to collect somewhere around £0.5bn per year extra off BA. The regulator will tell HAL what they are allowed to collect and probably what sort of formulae they will use (landing charges, per passenger charges etc). BA will pass that through directly to the punters just like every other slot holder.

Aside from start ups and specific marketing initiatives there will be no scope for anything which might be anti-competitive across airlines in the aero charges.

How do you see it?

[PAXboy]

IAG is only doing what any other company would do (and should do) protect the interests of it's staff and shareholders.

Unfortunately for them, BA is a 'mature' company (= 0ld) and they cannot roll back their cost base very much more. So they will fade from the scene and then be taken over by someone on the up.

In due course, THAT airline will get fat and mature. It is what human beings do.

[Fairdealfrank]

FdF-- could you elaborate on your concept of accommodation. As I see it, if the project costs £20bn entirely funded by the air traffic, HAL will need to collect somewhere around £0.5bn per year extra off BA. The regulator will tell HAL what they are allowed to collect and probably what sort of formulae they will use (landing charges, per passenger charges etc). BA will pass that through directly to the punters just like every other slot holder.

Aside from start ups and specific marketing initiatives there will be no scope for anything which might be anti-competitive across airlines in the aero charges.

How do you see it?

It's a gut feeling based on common sense, have no knowledge of what wiggle room may be available. If there isn't scope for some accomodation, then BA has to suck it up, it has nowhere else to go.

Both parties might regard such arrangements (if there are any) as "commercially sensitive information". The CAA may have some rules that have to be followed and the EU would almost certainly interefere somewhere down the line, so impossible to speculate.

As mentioned above, IAG is acting in the interests of its shareholders and that it's a negotiating ploy, that also implies that there is a deal to be done.

The new rwy won't be financed entirely by airline charges. HAL can issue bonds, accept new investment, increase concession charges, increase car parking charges (ouch), etc.. It's all about supply and demand.

IAG is only doing what any other company would do (and should do) protect the interests of it's staff and shareholders.

Unfortunately for them, BA is a 'mature' company (= 0ld) and they cannot roll back their cost base very much more. So they will fade from the scene and then be taken over by someone on the up.

In due course, THAT airline will get fat and mature. It is what human beings do.

So what is to be done? Create subsidiaries with different (worse) terms and conditions for staff and transfer parts of the business to them?

Maybe go down the road of Germanwings (LH) or Hop (AF)? AF and LH are as mature/old as BA. Maybe VY could take on the equivelant role.

[Heathrow Harry]

"that also implies that there is a deal to be done"

what you mena is thatthe taxpayer will pay more - anyway it wil change the whole economic basis of the report= even more legal challenges..................

when the neighbours don't want it and your biggest customer doesn't want it do you REALLY think this will happen???

[Skipness One Echo]

Of course, because a lot of the neighbours DO want the jobs and prosperity it brings and we know why BA are terrified, it's because market forces will drive down yields in short haul and they'll be forced to reform BA short haul.

[BasilBush]

Neither BA nor any other airline will have a veto on R3. If there is demand for additional capacity at LHR then other airlines will take up whatever slots BA don't want.

Both BA and HAL are acting as quasi-monopolists, in an entirely predictable way. HAL are gold-plating the R3 scheme as they did with T5, and the regulator (CAA) needs to take action to prevent this. Equally BA want to protect their dominant position at LHR, and the same regulator needs to make it clear to BA that they will not have an easy ride. In particular, if BA think that in the absence of R3 they can simply ration demand by putting up air fares (while also failing to improve efficiency and service quality) then the CAA needs to remind BA of the powers it has to impose huge fines for anti-competitive behaviour.

Neither our 'national' carrier nor our leading airport operator is behaving very well, in my view. Only the regulatory authorities can seriously address this, and I'm concerned the current team at the CAA isn't up to the job.

[BasilBush]

And an interesting take by The Economist

Airport expansion in London: BA's big bluff on a third runway at Heathrow | The Economist

[Fairdealfrank]

"that also implies that there is a deal to be done"

what you mena is thatthe taxpayer will pay more - anyway it wil change the whole economic basis of the report= even more legal challenges..................

when the neighbours don't want it and your biggest customer doesn't want it do you REALLY think this will happen???

Having missed a vital comment, "If there isn't scope for some accomodation, then BA has to suck it up, it has nowhere else to go", it may be an idea to re-read the whole post, a couple of times if necessary.

There's is also no mention of taxpayers in it.

BTW, who says the neighbours don't want it? The vocal anti-LHR NIMBY minority live miles away and can in no way be described as "neighbours".

BA don't want a third rwy? Everyone must missed that point in its evidence to the Commission, a bombshell like that would surely have made headlines. In reality the CAA will decide, LHR is a regulated airport.

If it a third rwy doesn't happen (and it probably won't) it will not be for the reasons you mention, it will be as a result of the usual suspects: delay, indecision,and dither.

[kcockayne]

Was Mr.Walsh speaking the truth when he opposed Heathrow expansion recently ? I don't think so. Despite what he said, BAW are committed to Heathrow -like it or not. Where else could they go ? Even though it's expansion would cost BAW a lot of money, it would also enable them to earn an awful lot more !
Mr. Walsh's statements will continue to be examples of manipulation & political intrigue, until he gets what he wants - an expanded Heathrow.
However, that does not mean that he will get it !

[Heathrow Harry]

they wouldn't make an awfull lot more money - that's his point

he will be paying a lot more for the flights he currently has AND a load more competition will be able to use the place driving down the extortionate prices BA get away with at the moment

Imagine a large Easyjet or even Ryanair presence there...........

he wants LHR to be 100% BA - not a bigger airport

[Walnut]

IAG has just bought 31 new Airbus a/c most of which are destined for Iberia, also with their acquisition of Air Lingus in 10 days time with the potential of another major hub (pre cleared US flights in Dublin?) then LHR can be juggled without the extra capacity some say BA need, I still think Northolt as a domestic satellite
could be a short term answer.
This is where WW is coming from why get involved in the enormous disruption and extra imposed costs of R3. Ryanair does it successfully by switching when local authorities get tough, so why can't Willy?.

[Skipness One Echo]

Why would connecting domestic pax use a different airport at NHT to connect miles with BA long haul when KLM can do it under one roof at AMS? What question is NHT an answer to? P2P was semi moved out when LCY was built up, how is a ludicriously complicated connection to a different airport a good idea in this market? *Hint : It's not, this is why it's not a serious option.

As for WW thinking he can have 100% Heathrow, that's not likely now is it, and WW is nothing if not a realist. Back to reality please chaps?

[DaveReidUK]

The "Heathholt" proposal was comprehensively taken apart by the Airports Commission in its December 2013 Interim Report.

[BasilBush]

BA doesn't need to have 100% of a constrained Heathrow in order to have a very strong (arguably dominant) market position. 55% will do quite nicely.

BA are finally waking up to the reality of how R3 would adversely affect their dominance of LHR. Conversely, with no R3, BA's market power will only increase, with an upward impact on yields. And yields are more important to BA's future profits than growth.

In theory the competition authorities should step in to prevent BA benefitting from an abuse of a dominant position. But perhaps BA is prepared to take this risk.

[Trash 'n' Navs]

Originally Posted by BasilBush

BA are finally waking up to the reality of how R3 would adversely affect their dominance of LHR.

WW hasn't "finally" woken up - he's been playing the game from the onset which is why he has never backed any airport. The best you get is "LHR will be too expensive" & "LGW doesn't have even have a business case". He wants LHR but wants to pay as little as possible for the benefits that R3 will give him.

Walnut, how about you put-up a sensible, credible option for a change? From your posts, one might even infer you've not actually read any of the submissions, the AC Interim Report or even the AC Final report.

[BasilBush]

I'm not sure you're right about BA, Trash. For some time there has been a school of thought within Waterworld that the best solution for BA is for LHR capacity to be permanently constrained, leading to an imbalance of supply and demand and the scope for BA to ration demand by price. The recent change in emphasis by WW might imply that this view is gaining currency within BA.

If R3 does go ahead, then 50% of the new slots will go to new entrants. Easyjet have made their views clear. The impact on the economics of BA's short haul operation, and its implications for the hub-spoke model, are pretty obvious. BA might seek to address this by shifting short haul to Vueling, but this would result in WW3 with the BA unions.

[Trash 'n' Navs]

scope for BA to ration demand by price

Basil, clearly that tactic's not working. LHR is having its busiest year, T5 too. All whilst IAG-BA posts strong profits. BA have always cried poor that LHR's pricing is too high yet are happy to derive the significant benefits from being there. An aviation academic (from a well known & highly regarded university) once said to me that LHR should be charging more than it does because it has a strong brand, strong customer offering and generates more benefits to airlines than any other European airport. In any other industry, such a market would sustain higher prices but the UK CAA restrict pricing instead. So BA should be thanking the CAA for protecting their margins!!

[BasilBush]

Your final sentence is key, Trash. Yes, the CAA rightly restrict HAL's charges on the grounds that HAL has substantial market power, such that normal market mechanisms can't prevent it from overcharging. So regulation is required.

The net effect of this is to transfer the economic 'rent' to the airlines, who end up being able to make supra-normal profits. The underlying demand for flights ex-LHR is substantially higher than the available capacity, and BA (and others) are able to charge higher prices than would be possible in a normally functioning market (hence my reference to BA rationing demand by price). This will only intensify as LHR capacity is constrained. That's an enticing prospect for BA in particular, until such a time that the regulators train their attention on the airlines as well as on HAL.