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Buster the Bear
13th Nov 2003, 03:18
12 November 2003

BAA admits LHR/LGW would have to help fund STN runway

Airlines have reacted angrily to BAA’s admission that a new runway at Stansted would have to be funded by cross-subsidies from Heathrow and Gatwick.

The Daily Telegraph reports that in its response to the Government’s consultation on airport capacity in the south east, BAA said: ‘We currently believe that the option for one new runway at Stansted would be financially viable…but the charges needed to remunerate the investment would need to be shared across users of the London system as a whole rather than applied to Stansted users only.’

The maximum charges BAA is permitted to levy on airlines operating from Heathrow, Gatwick and Stansted are set on a five-yearly basis by industry regulator the Civil Aviation Authority. BAA’s submission goes on to say that to fund a £4bn runway at Stansted on a ‘stand alone’ basis, the CAA would have to allow it to raise the current maximum per passenger charge at the airport by 120% to £9.39.

According to the Telegraph, in reality this would mean Stansted’s fees would actually treble, because to date BAA has kept them artificially low, at more than £1 below the permitted maximum, to attract budget airlines such as easyJet and Ryanair. The airport operator claims, however, that using a system of cross-subsidies would necessitate per passenger charges at Stansted rising by just 35% to £5.79.

But the CAA is opposed to cross-subsidisation between airports. Earlier this year, it told the Government: ‘It is less clear that allowing cross-subsidy from charges at one airport to finance capacity enhancement at another would be desirable or justifiable. Airlines based at Heathrow are likely to question why they should pay for capacity enhancement at Stansted, when they would receive little or no benefit…and indeed could be improving the ability of airlines at Stansted to increase market share at their expense.’

On Monday, at the release of British Airways’ second quarter results, the airline’s chief executive Rod Eddington said if BAA tried to ‘milk’ Heathrow to expand Stansted to the benefit of low cost rivals ‘we will fight it tooth and nail’. And yesterday a Virgin Atlantic spokesman told the Telegraph: ‘There will be a massive row [if a new runway is built at Stansted] and frankly we think it would be difficult to push through.’

Meanwhile TBI, the operator of Luton Airport, where easyJet also has a base, claimed cross-subsidisation was an abuse of BAA’s monopoly power. The paper quotes TBI chief executive, Keith Brooks, as saying: ‘We have to compete with Stansted. The cross-subsidy thing is exercising everyone. The airlines are crying foul and so are we.’

The Department for Transport said Tuesday no firm decision had been taken on the new runway’s location. The Government plans to publish the aviation white paper close to the centenary of the Wright brothers’ first flight on 17 December.
Separately, BAA announced 11.9m passengers used its seven UK airports in October, 4% more than during the same month of last year.

Traffic in all major markets continued to improve, with the North Atlantic recording its first monthly gain (+1% year-on-year) since February 2003, while Heathrow had its strongest month since January, reporting passenger numbers up 2.6% at 5,636,400.

PH-UKU
13th Nov 2003, 06:11
Ha ha ha. So let me get this straight. BAW are moaning that 'cross-subsidy' might go to build R2 at Stansted? Yet have not all the other BAA airports spent years 'cross-subsidising' Heathrow (Heathrow Express, T5 enquiry) to BAW's advantage?

Over the yearsr BAW have been complicit by channelling all their 'regional' customers through LHR and LGW instead of developing decent direct routes. (For years they have done 0 for Glasgow and Edinburgh, when the advent of CRJs and E145s should have changed that). Now that the LOCOs arer fast expanding direct routes to Europe, I doubt BAW will be able to play catch-up....sorry I digress.

Can't say i have any sympathy for BAW who have milked the system too long for their own ends.

Buster the Bear
13th Nov 2003, 06:36
Think HM Govt, Golden share in BAA and the Governments quest for extra runway capacity around London!

If the BAA is made to compete on level terms, then can it reasonably fund additional capacity without Xross subsidies?

Golden Share!

answer=42
13th Nov 2003, 22:49
Cross-subsidy is a no-no in terms of competition policy - very embarrassing for Govt to make a planning decision based on this.

On the other hand:
LHR environmental problems that exceed govt legal commitments. (BAA disagrees of course)
LGW ban on new runway development until whenever.
Luton etc. Somehow I doubt it.

Govt aim: get at least one or better two runways into play without making too many enemies.

Solution to cross-subsidy issue. Place cap on cross-subsidy that permits STN runway development but forces BAA to charge full price for landing fees there. Meaningless but hard to fight.
Sweetener: BA gets LHR 3rd runway later but subject to meeting environmental objectives.

Outcome: Lo-cost go to LGW; BA and other long-haul go in other direction.

Is there a better solution?

answer=42

PAXboy
14th Nov 2003, 00:58
Buster, you named the subject of the thread "BAA totally out of order?"

For that to be true, one has to agree that BAA have ever been in order. I agree no such thing. :hmm:

Sir George Cayley
14th Nov 2003, 12:45
Is that figure correct or should it read £400m?

Manchester built its second runway for around £200m including quite a lot of peripheral costs particular to the "difficult" site

If BAA calculate £4bn why dont you and I form a consortium and bid £1bn then give MAplc £300m to build it and pocket £700m between us.

Thats a lorra lorra honey, honey!


Sir George Cayley

Buster the Bear
14th Nov 2003, 18:21
From todays Times:

Lawsuits threatened as Luton airport is 'frozen out'

THE chief executive of Britain's second largest airports operator is to warn the Government today that he will take legal action if Luton airport is frozen out of plans to expand air services in the South East. Keith Brooks, head of TBI, also plans to raise concerns about the impartiality of the Government's relationship with BAA, his more powerful rival and owner of Heathrow and Gatwick airports, The Times has learnt. Any action by Mr Brooks could have serious consequences for the Government's plans to build another runway at an airport in southeast England, plunging the issue into a lengthy regulatory battle.


Mr Brooks said the potential of Luton, owned by TBI, had been ignored by government officials working on a White Paper on airport expansion, which could be unveiled as early as next week. He will today tell advisers to Alistair Darling, the Transport Secretary, of his frustrations at trying to "get Luton on the agenda". Mr Brooks said: "We are not going away. If we feel that we have been marginalised then I will take whatever political or judicial action is open to me, in Britain and in Brussels."


He will also raise his concerns about BAA's influence in the corridors of power. "I am concerned about BAA using its monopoly position in the South East. I am concerned about the impartiality, given (BAA's) connections with government." Mr Brooks believes that some independent advisers working for the Government and other authorities on the airport issue are former BAA employees. "I would question the independence of some of these people," Mr Brooks said.


The White Paper is expected to recommend where another runway should be built in the South East, as well as measures to help to ease the congestion at the region's airports.


Heathrow is the big airlines' favoured location, though it faces formidable opposition from the environmental lobby. Gatwick, once ruled out on legal grounds, is now also a contender for the runway. Stansted is also emerging as a real possibility, because the strength of opposition to Heathrow and Gatwick means that the Government might not be able to build the runway in time.

BAA's runway capacity in the South East will run out by 2013 and some in the Government believe that Stansted is the only airport that could be expanded by then. However, BAA says it would have to fund the cost of building a Stansted runway by raising its fees at Heathrow and Gatwick. That would anger Heathrow's big airlines, such as British Airways and Virgin. With Luton just 40 miles from Stansted, supporters of TBI believe that the arguments for putting a runway at its airport are just as strong as its near neighbour. Mr Brooks said that local opposition to an additional runway was not as strong in Luton as elsewhere. Even if prevented from opening another runway, Mr Brooks said Luton should be allowed to raise the threshold on the number of passengers that can use the airport. He said: "In the short term, Luton provides the solution for the Government. Gatwick has 32 million passengers off one runway. Luton has seven million."

A spokeswoman for BAA said: "This is a democratic process involving extensive consultation by a democratically elected government. It would be ridiculous to imply that we played any different role to any other organisation in this process."