BA vs Heathrow in cynical row over 3rd runway

IAG’s Willie Walsh hates the idea of a new runway at Heathrow. He doesn’t want The groups airlines who have a near 60% share of slots between them, to loose that dominance. A new runway will see them fall to about 45% and they’ll have to face competitors so far kept out – especially easyJet, who have walked all over BA at Gatwick.

The tactic IAG uses to discredit the new runway programme is cost – costs they claim the airline will have to pay to finance it, which it will have to pass on to customers – and it doesn’t think that’s fair.

Well of course it sounds like poor old BA, Aer Lingus, Vueling & Iberia will be made to extract money from customers and heavens, it might make them less competitive. IAG and and it’s airlines are your friends and they want you the customer to know it. They’re fighting your corner. Well that’s what they want you to think anyway.

The truth is of course more complicated. When you buy a ticket, somewhere in the sub menu links it will say ‘see breakdown of compulsory fees and airline charges’.

This is where the structure of a ticket is truly revealed. The base cost of a ticket will seem astoundingly low – possibly on a single return economy as little as 20-30%. That’s the airlines real costs and profit. The airline fuel surcharge is just an extension of that and is listed separately. There’s no special accounting practice that makes them show that in their annual accounts so consider it part of the true price.

The other charges in many countries – especially the U.K.- are APD, airport charges, customs and inspection charges, immigration charges and so on depending on where you’re going. It’s the passenger airport charge that goes directly to, in this case Heathrow, that matters. Collected but not kept by your airline of choice.

So the cost to BA doesn’t go up. It’s the cost of the overall ticket that rises, but by a very small amount.

BA’s issue is that the TOTAL price rise may have to be countered for competition reasons (other airlines may have a better cost or lower destination price), so they have to adjust their profit down to accommodate it.

Except they never do. And that’s the cynical part of this. They are collectors of an airport fee, it doesn’t really affect them at all. Their landing fees are multi-year arrangements agreed with Heathrow and approved by government.

It’s only IAG who don’t want expansion at Heathrow. It’s not in their interest to have competition and them have to invest to fight for passengers. Especially as their short haul product slides inexorably down the U.K. customer satisfaction index.

Meanwhile Heathrow has listened – it does so because it’s in its interest to comply with everyone’s concerns if it’s going to get this runway built, which is by no means a done deal.

It’s managed to reduce costs by £2.5 billion through phasing build differently, using technology to speed passenger processes and reduce building volumes required to house those passengers, along with a host of minor changes to bring costs down.

It will never be enough for BA, or Willie Walsh. They’re not bothered about Heathrow capacity or the future of Britain post Brexit. Willie Walsh is Irish and will remain an EU citizen, IAG is principally based in Madrid – inside the EU and will have to stay their if it wants BA to keep flying post-Brexit and the growing likelihood U.K.-EU and U.K.-US services will be disrupted if comprehensive aviation agreements aren’t in place. An event that seems ever more likely as nobody thinks an agreement so complex can be agreed in barely a year.

The only winner if there is no extra runway at Heathrow is IAG. They don’t care about Britain post Brexit – because without that runway their position is safer and more dominant than ever.