Scuffle Between IAG And Heathrow: A War of Dominance or Quest for Survival?

posted on 14th September 2020 by Eddie Saunders
Scuffle Between IAG And Heathrow: A War of Dominance or Quest for Survival?
Mr. Kunal Sawhney

By Mr. Kunal Sawhney – CEO at Kalkine

Recently a fresh war of words erupted between British Airways, the flagship airline of the United Kingdom owned by IAG Group Plc and Heathrow Airport, over £500 million charge for failed expansion plans. The Civil Aviation Authority (CAA) had established an approach to expansion-related costs some time ago, and as per Heathrow that approach was approved and agreed by airlines, including IAG, allowing the airport to charge airlines the costs incurred for the third runway until February this year.

The tussle between the two is not something new which has come to light now, more than a year back IAG’s Willie Walsh had accused Heathrow Airport of “treating customers with contempt”. Criticising the Airport’s plan in which passengers were supposed to fork out £3.3 billion in up-front costs for the third runway of the airport.

The plans to build a third runway at Heathrow were blocked in February 2020 following a legal challenge. Judges blocked Heathrow’s controversial £14 billion expansion on appeal of campaigners over climate change concerns. It was not only the environmental charities including Greenpeace, PlanB and Friends Of The Earth, but the Mayor of London Sadiq Khan, who was a party to the legal action over the Government’s approval of the plans. It is also to be noted that Boris Johnson had also been a longstanding opponent of the third runway at Heathrow, though he dropped his opposition ahead of becoming the prime minister.

What Exactly Is the Issue Related To?

Now here some background details of Civil Aviation Authority’s (CAA) consultation document needs to be cited, which was in respect to the costs Heathrow expected to incur in advance of obtaining a DCO (Development Consent Order), under the Planning Act 2008 for the third runway of the airport. The total early costs expected was about £2.9 billion (in 2014 prices). This included £2.4 billion on early Category C costs and spending of over £500 million on Category B costs. The costs to February 2020 were £394 million of category B and £110 million of category C.

It is this £500 million cost which has become the bone of contention for the airport and IAG. CAA regulations allow Heathrow to increase charges in line with costs incurred, but the outgoing chief of IAG Willie Walsh confronted it saying that the framework, encourages the airport to spend recklessly.

Heathrow And IAG’s Stand for Asking and Not Paying Charges

Last year, IAG in submission to CAA consultation on the airport’s plans had said that it has absolutely no confidence in Heathrow’s ability to deliver cost-effective expansion and the costs have more than doubled in last two years.

In reply to that Heathrow had contended that expansion costs have not increased and are very well in line to what was submitted to the Airports Commission. Rather, it’s the IAG which is looking to protect their dominant position and record profits, as a third runway would result in increased competition among airlines and choice for passengers.

IAG is saying that Heathrow Ltd would have to meet its own sunk costs, while the airport is arguing that CAA’s established approach should adhere. Though the government is not planning to appeal to the Supreme Court, but Heathrow Airport has made its intention clear to approach the final court of appeal. Now the major concern between the tussle of the two entity is that economy viz-a-viz environment should not fall a victim.

For Environment and Economy, A Mid-Way Needs to Be Found 

The unprecedented crisis of Covid-19 has severely impacted both airlines and airport segments, who are struggling to manage finances and resorting to mass lay off. The expansion of infrastructure like airports is critical to driving the economy. At the same time, climate change and other environmental factors should not be ignored, even the Judges while delivering the ruling had pointed that the government did not have adequate consideration to its commitment to the Paris Agreement on climate change while allowing the expansion. Now a mid-way needs to be consented by all which is best in the interest of the economy and the consumers, adhering the environmental norms and reducing carbon emissions.