Don't think you can have it both ways!

Bagso

I don't see a contradiction. It's entirely reasonable for BA to resist an increase in HAL's charges to fund R3. Any sensible business would do that. Remember, however, that BA strongly resisted the increase in charges to fund T5. They lost, but did that affect their growth at LHR? No, they continued to hoover up slots, eg by acquiring BMI.

If R3 goes ahead I would hope that the increase in HAL's charges might be lower than implied by Davies. But even if an increase of (around) £10 is required, I really don't think that BA would suddenly throw in the towel. All the evidence (such as slot values) points to Heathrow's charges being well below market clearing levels. BA might shout and scream, as they did with T5, but they'd pay up in the end.

Fairdealfrank

It's not a case of having it both ways. It's just that if R3 doesn't go ahead BA's existing market position at LHR will become even more dominant. In such cases it can be expected that air fares will rise and quality reduce. At some point this could lead to regulatory intervention, if things get out of hand. Although a no-R3 scenario might seem superficially attractive to BA, I'm sure some of their in-house lawyers are giving deep thought to the potential consequences.

BA is In a bit of a conundrum. If R3 does go ahead they get scope to expand, but also much stronger competition from new entrants, including easyJet. If R3 doesn't go ahead, BA will be under permanent scrutiny from the competition authorities. Since Colin Marshall's days, BA has been a devotee of scenario planning, and I'm sure the (many) meeting rooms in Waterside are being put to good use debating this issue.

I take your point Basil BUT is it not £10 "on top" of WW perceives as mega high charges in the first place ?

On another point , must confess there are some major players championing R3 enthusiastically, BUT as HALs best customer I would have thought they would be leading the charge ?

IAG appear someone reticent about the whole project in my view !

Maybe WW is not that kind of chairperson but he has been pretty robust when I have seen him interviewed.

I cannot imagine he would be overly enthused with having EZY in his backyard and how would that effect the IAG model ?

The Lo Costs have wiped the floor with the legacy carriers if you open up LHR could that undermine IAG ?

Bagso, the answer to your first question is Yes. Charges at Heathrow are already high by international standards, and would have to rise further to fund R3. But the attractions of Heathrow to airlines are such that even higher airport charges are unlikely to choke off demand. Otherwise how do you explain the stratospheric slot prices?

As to the impact on BA you are right to question their ambivalence. I'm sure there are some in BA who think that a no R3 scenario would be good for BA. With BA and its partners having c60% of the slots, BA could act as a greedy monopolist by increasing air fares and reducing the level of service. From a consumer's point of view this is extremely undesirable, and I would hope that the competition authorities would step in. But BA has not been averse to anti-competitive behaviour in the past....

And, as you say, easyJet's entry into LHR would expose BA's short haul operation to a much lower-cost competitor, forcing them to respond by reducing their own cost base radically. That would be good for consumers. Easyjet have made this very point in their submission to Davies, arguing that the resulting improvement in the cost base would outweigh the impact of higher airport charges.

I am with Basil Bush 95% of the way here. What is good for BA is not necessarily what is good for UK plc. I suspect the Mancunian Tendency might agree with that! If you've already got the slots you want then naturally your perspective is a bit different from (a) if you haven't, (b) you are trying to view it from a wider perspective than that of an individual agent.

The 5% concerns what happens in the do-nothing scenario. As I understand it the slot regime is governed by the EU and I don't see any available remedy as long as we are in. Can you think what might be feasible within the rules Basil?

Hi anothertyke. I'm not a lawyer so I can't really give an authorative answer. In particular I don't know whether the competition authorities could require IAG to divest slots. In practice, however, the penalties for abuse of a dominant position are potentially so great that IAG might be forced into giving up slots (to allow meaningful competition) so as to avoid a huge fine. Under UK and EU law, such anti-competitive behaviour can attract fines of up to 10% of worldwide turnover, which in the case of IAG could amount to over £1 billion. That would concentrate the mind...

There are already signs (see Flyertalk forum) that BA are taking their market for granted at Heathrow. They need to be careful.

Dominant Carriers.
 

Don't AF/KLM and LH have a greater percentage of slots at their respective homebases that BA do at LHR? :confused:

I haven't seen recent data but that certainly used to be the case. However, the crucial difference is that neither CDG nor (to a lesser extent) FRA have the same barriers to entry as LHR. LHR is operating at around 98% of the maximum allowable number of movements.

Where it is possible for new entrants to come in, monopoly concerns are much abated. That's also why there is little evidence of high slot values at either CDG or FRA.

In any event, just because someone else might be getting away with it doesn't make it any more acceptable!

We should of course qualify the discussion in terms timescales which at 20 years is a generation away !

Just wondering how PR might have been different if it had been decided that Gatwick would have first refusal to design/build/operate a new runway and terminal at LHR, and vice-versa.

If LHR doesn't get a third rwy, BA's position will be no more dominant than AF at CDG, KL at AMS and LH at FRA. The difference is that those airports have expanded and will continue to do so when needed, LHR won't.

It is unlikely that a no third rwy scenario would be attractive to BA (whether superficially or otherwise). The daily all-day delays and congestion, and the consequent waste of fuel, at BA's hub airport must be a constant and permanent headache for the carrier.

This situation contributes severe unavoidable costs for BA as does the expense of the secondary slot market which inhibits its growth. BA's competitor carriers do not have to put up with this nonsense at their respective hub airports.

With a third rwy, all that goes away, plus it gets access to more slots for free. Yes, it is a double-edged sword because other carriers will also get access to free slots, but with the operational headaches and the associated costs eliminated, BA would better placed to compete with the likes of U2 and others.

Read/listen to IAG's comments carefully, it is resigned to the fact that there will be no expansion at LHR, not welcoming it.

Frank, I do understand what BA's public line is. However, within Waterside, there is a school of thought that a no-R3 scenario might be a better result for BA, despite the clear drawbacks you refer to. Obviously BA can't say this publicly, as it would be seen as being anti-competitive.

(BTW I think they would be mad to take this line - BA are sailing pretty close to the wind on the "market power" issues already).

What do you suggest?

Typically when a market power test is undertaken the competition authorities look at a range of things. These include prices in the market, the quality/level of service provided, investment in the product, evidence of a lack of innovation etc.

There is some evidence (by no means compelling, yet) that BA has a degree of market power in all of these respects.

On the pricing side, there is evidence of higher yields at LHR, and the existence of high slot values could be seen by regulators as a clear indicator of excess profits ('rent' in economists' speak).

On the quality/service side, I detect an increasing amount of dissatisfaction with BA. The Flyertalk discussion on BA is interesting, suggesting a trend of reducing costs and service in a wide range of areas. The BA ground operation at LHR is particularly poor, suggesting that they don't have to try terribly hard.

On the innovation/investment side, BA used to be a clear innovator, particularly in the premium product. Now they are very much an also ran, losing out even to the U.S. carriers in the long haul business class product.

I'm not saying that things are yet at a stage where the competition authorities will step in. But in my experience things can easily get out of hand - it only takes a few politically sensitive incidents for attention to be focussed on any large company. And once you lose control of the agenda, any outcome is possible.

BA/IAG would be ill-advised to assume that they would have an easy ride from the competition authorities if they hold c60% of the slots at a no-R3 Heathrow with an increasing imbalance of supply and demand.

Not privy to the goings-on at Waterside, but there's always some in an organisation taking a contrarian view. Hard to believe that it could be a better result. Sounds more like someone putting a brave face on it.

Publicly, IAG appear to have already come to terms with the fact that LHR won't get a third rwy, Willie Walsh has stated this on numerous occasions, and the attempted EI acquisition may be partly related to this fact.

Whether IAG really believes this or not is a moot point, but clearly no expansion at LHR is bad for the whole UK economy, not just for BA/IAG.

Fairdealfrank - 100% agree on your last point. LHR expansion is long overdue.

As for BA, personally I feel that in the long run R3 would be good for BA. The influx of new competition would force them to deal with issues that they have so far been reluctant to address. In particularly the high unit costs in short haul, and the terribly inefficient LHR ground operation (the two are related of course).

Stop the printing presses - seems it's now all going back to square one! At this rate, should we all just wait until after we've each got our own personal jetpacks?

Airport runway review faces delay for more consultation - BBC News

"The consultation will begin immediately and end on Friday 29 May."


DANGER - consultants at work!

.....not so much "long grass as a forest"

Cannot see all those backbenchers in SE agreeing to anything resembling a plan !

This is damaging the UK economy more than them arses in charge think it is. By the time RWY3 is complete, at this stage, LHR will have lost its largest hub In Europe status.