June 6, 2018 / 4:01 PM / 9 months ago

Breakingviews - Expanded Heathrow’s value to rest of UK is hazy

An aircraft lands at Heathrow Airport near London, Britain, December 11, 2015. REUTERS/Neil Hall/File Photo

LONDON (Reuters Breakingviews) - An expanded Heathrow’s value to the rest of the UK is hazy. Europe’s busiest airport looks set to build a 14 billion pound runway after getting the thumbs-ups from cabinet ministers on Tuesday. Plans to defuse some of the scheme’s more controversial points look harder to fulfil.

Environmentalists, wealthy Londoners and Conservative lawmakers that have spent two decades trying to nix Heathrow expansion have some comfort. UK Prime Minister Theresa May has made her support contingent on stiff air quality targets and a night-flight ban. But the way to placate the other big group of critics – UK residents that don’t live in London – looks less watertight.

As it stands, the plan is to hand 15 percent of the new runway’s coveted landing slots over for free, in return for commitments from airlines to fly to the likes of Manchester and Edinburgh. But airlines still need to fill seats and more than cover their costs. Richard Branson’s Virgin Atlantic was forced to shut down its domestic airline Little Red in 2014 having struggled to sell domestic UK routes, while BMI also hit difficulties. Passengers weren’t using the service to connect to its more profitable long-haul routes.

Charges and taxes create barriers to entry. Heathrow includes a landing fee of around 20 pounds per customer, 25 percent higher than Gatwick, and departure taxes are the highest in the western world at 13 pounds. If an airline wants to run a route from London to Glasgow and back, they are hit with a double tax of 26 pounds and 20 pounds of customer charges. That’s 46 pounds of fees before fares are included.

Budget airlines like easyJet could come to the rescue. The 6.8 billion pound airline has hoovered up passengers from ailing competitors like Air France KLM. To make its Heathrow debut viable, however, it needs to secure a meaningful proportion of landing slots and depart from its 58 pounds average fare model. If that doesn’t work, regional flights will be grounded. And those who said Heathrow’s expansion would only benefit London will be proven right. 


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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