Heathrow scraps new terminal plan to control expansion costs

Heathrow will guarantee to effectively freeze passenger landing fees when a third runway is built by scrapping plans for a new terminal.

The London hub today pledged to knock “several billion” pounds off the cost of its expansion plan by abandoning facilities such as an additional terminal, new baggage handling systems and an underground train.

Heathrow will instead suggest extending Terminals 5 and 2 and phasing the expansion work over as long as 20 years to control costs.

The airport hopes that the plan will cut the £16.8 billion price tag for a third runway while easing concerns that a hike in passenger landing charges will price many carriers out of Heathrow.

The proposals will go out for consultation later this year.

Willie Walsh, the head of British Airways’ parent company International Airlines Group, had predicted that landing charges, which add £21.75 to the price of each ticket, could double under a third runway as the airport’s private backers seek to recoup investments.

However, Heathrow chief executive John Holland-Kaye pledged to keep fees “as close to current charges as possible” when the runway opens, possibly by 2025.

Speaking ahead of the airport publishing its latest financial results today, Holland-Kaye told The Times: “We will be reducing the terminal costs by several billions of pounds. When you think about HS2 and other big national projects the costs tend to go up rather than go down, so if we can bring the costs down it will be remarkable.

“We have been working for some time on bringing the absolute costs down and we are getting to a very good position. Having passengers paying pretty much the same amount as today while getting a world-class airport with better public transport is a remarkable achievement.”

The two-mile runway is set to be built to the northwest of the airport, allowing it to boost annual passenger numbers to 130 million a year.

Heathrow originally suggested building one additional terminal between its northern runway and the new runway. It would require a huge subsurface baggage handling system and an underground passenger metro system, which was estimated to cost £1 billion alone.

Holland-Kaye insisted that this could be replaced by an expansion of Terminal 5. Over coming years, Heathrow’s other main terminal, Terminal 2, would also be expanded, he said.

Announcing a 36% hike in half year pre-tax profits to £102 million for the period to June 30, Holland-Kaye said: “Heathrow’s strong start to 2017 is a boon for Britain – our passengers are getting better value and service, more British trade is flying high on new trading links and our expansion plans are on track.

“The government set us the challenge to expand Britain’s hub while keeping airport charges close to current levels.

“Working with airlines, we are making good progress to meet this challenge whilst delivering all our local commitments and the global connections our country needs.”

Passenger charges fell by 2.3% in the six months as passenger numbers rose by almost 4% to 37.1 million in the half year. Revenue was up by 4.2% to 1.37 billion.

Transport secretary Chris Grayling has insisted that keeping landing charges flat would be a condition of building a third runway. The plan still has to pass a parliamentary vote next year and be approved by planners in the early 2020s.

The airport said: “Continuing to work with airlines, neighbours and wider communities, we are making good progress to meet the secretary of state’s challenge to expand Britain’s hub while keeping charges close to current levels and meeting our local commitments.

“We have identified potential further savings through this work by looking at the location and configuration of the terminals along with different phasing options.

“We will continue refining our plans and release various options at our first planning consultation later this year.”

Tim Alderslade, chief executive of Airlines UK, which represents carriers, said: “Heathrow is the most expensive airport in the world and, post-Brexit, the UK will need to compete even more with other hubs. Airlines are clear that the cost of expansion that they and their customers pay for is a key factor.”

Alderslade added: “We need the right solution at the right price, at the right time, in order to meet the needs of customers, and over time the aim should be for charges to come down as the number of movements increase.”

He said that airlines agree with Grayling that expansion at Heathrow must be delivered while keeping charges flat.

“The secretary of state’s statement was an important acknowledgement that extra capacity must not just be waived through under any circumstances, at any cost.”


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