Change Heathrow funding or third runway won't happen - businesses

Businesses and airlines say Heathrow is the most expensive airport in the world

Airlines and hoteliers say Heathrow's funding model should be reformed before any investment is made in the proposed third runway.

Businesses want a fundamental review of the regulations set by the Civil Aviation Authority (CAA) that govern what Heathrow can charge. They say the current model makes Heathrow the most expensive airport in the world.

If changes are not made, businesses say the third runway will not happen as it will be too expensive.

The CAA said it would "carefully consider" conducting a review of Heathrow's economic regulatory model.

A Heathrow source said that the airport management had already told airlines and the government that it would propose to look at a different, longer-term regulatory model for a third runway.

But, as with other goods that consumers buy, those who use a service or product have to pay for the cost of providing or producing it as is the case today.

Surinder Arora told BBC London the regulatory system at Heathrow encourages inefficient spending

Surinder Arora is the chair of Arora group which owns 16 hotels and lots of land around the airport. He is pro-expansion but he has his doubts it will happen.

He told BBC London that Heathrow is overcharging for many items.

For example, he says he pays 2.62p a unit for a unit of water at the Renaissance Hotel which is outside the Heathrow Airport boundary.

At his Hilton hotel next to Terminal 2, within the boundary, he pays Heathrow Airport a lot more - 23.27p a unit. That high price is passed on to his customers.

He gives other examples including three oak trees being chopped down and the airlines being charged £76,000.

A smoking shelter which he says would cost normally £20-30,000, he says cost Heathrow £1.1m.

Sources at Heathrow dispute those figures.

But he says the regulatory model allows Heathrow to charge what they want for many services, such as water, parking or construction, as they are a monopoly.

"The current monopoly at Heathrow doesn't only vastly overcharge passengers on aviation fees but also on their parking and a variety of other services as it continues to stand out as the most expensive airport in the world by a long way," says Mr Arora.

"We are delighted to be working with the airlines to ask the CAA to look more carefully at the regulatory issues which lead to such high prices and seize the opportunity for competition to improve Heathrow's offer to passengers."

Most expensive for airport charges

He told me without change the third runway would not happen.

"If it stays the same then it won't happen," he says.

"If you look at the last two decades they have never delivered a project on time and on budget.

"What they're looking at spending is £62bn plus. And the current value of the airport is £20bn.

"So what they're saying is we will increase the passenger numbers by 50% but we want you to pay three times than what the value is today. How can any business survive that?

"If they just carry on the same model, everyone else will end up paying for it."

Nigel Wicking, chief executive of Heathrow Airline Operators Committee, says all of the costs are passed on to travellers.

"Heathrow is rapidly falling behind other major airports around the globe both in facilities and service to airline customers, while having the unenviable accolade of being the most expensive for airport charges. This cannot continue," he says.

"The airline community want to offer travellers, to and from the UK, a great experience through Heathrow and we want growth, also avoiding the disproportionate costs we too often see by Heathrow Airport Limited."

The government has said it will back a third runway if it can be expanded within noise, pollution and carbon limits.

This week, Heathrow Airport said it would be applying for planning permission by the summer.

The Heathrow source said it made little sense to suggest that passengers would have new runways and terminal buildings for free as they would require investments over and above current regular investment levels.

Heathrow is keen to run a transparent process and work in partnership with airlines, the regulator and ministers to put in place a model that delivers the benefits of expansion for the UK as quickly as possible - including the lower airfares that consumers can expect as a result of new capacity being unlocked.

It also pointed out as part of the settlement airlines must agree to approve of all spending and the regulator makes sure it is value for money.

Selina Chadha, group director for consumers and markets at the UK CAA, said: "We have received a submission asking us to conduct a review of Heathrow's economic regulatory model, and we will carefully consider it as part of our commitment to effective regulation.

"We will always focus on delivering in the interests of consumers, while supporting growth, investment, and efficiency."