U.K. Fee Limit May Hurt Runway Plans, Heathrow Head Says

The U.K. aviation regulator’s proposal to cap fees charged by London’s biggest airports over the next five years risks driving away investors, threatening plans to ramp up runway capacity, Heathrow Airport Ltd. said.

“There is a connection between the reputation that U.K. regulation has historically had for being predictable and providing the right signals to capital,” Chief Executive Officer Colin Matthews said today in an interview. “If that relationship is broken, then that would have damaging consequences.”

The U.K.’s Civil Aviation Authority sets the maximum amount that Heathrow, Gatwick and Stansted, London’s three busiest airports, can charge airlines for using facilities, and it must approve their business plans. The fees, which drive up passengers’ ticket prices, underpin investment such as Heathrow’s 3 billion-pound ($4.6 billion) in proposals intended to help it keep pace with competitors across Europe, including Charles de Gaulle in Paris and Fraport AG’s Frankfurt Airport.

Under the CAA’s initial plans published in April, Heathrow would need to cap airline charges at 1.3 percentage points less than the U.K.’s retail price index for the five-year period starting in April 2014.

The proposals “materially underestimate Heathrow’s cost of capital,” the airport-operating company said today in a statement. Heathrow, Europe’s biggest airport by passenger numbers, said it asked the CAA on July 19 to allow yearly changes in fees at the RPI inflation rate plus 4.6 percent.

Investment Total

Spending of 3 billion pounds over the next five years, as proposed by Heathrow in February, would bring total investment at the site since 2003 to 14 billion pounds, according to the airport operator.

The CAA is taking public comment on its fee plan until early October, and is scheduled to make a final ruling in January. The regulator “is studying all submissions to the consultation,” Richard Taylor, a spokesman, said today by telephone.

Heathrow is fighting for survival after London Mayor Boris Johnson said earlier this month that he favors replacing the airport with a four-runway operation either at Stansted or at newly built facilities in the Thames estuary.

Operator’s Strategy

The airport operator countered Johnson’s proposal a week ago by submitting three options for expansion to the state-appointed Davies Commission on U.K. airport capacity. Heathrow said that each of its alternatives would be capable of delivering extra flights by 2025-29 at a cost of no more than 18 billion pounds.

While the coming investment cycle won’t include construction of new runways, “we need to get the next five years right,” Matthews said. “We’ll invest what we need to make sure the airport operates correctly, but our ability to drive forward towards where we want to be in 2030 is going to be slowed down.”

Heathrow today reported a 9.2 percent increase in first-half sales to 1.15 billion pounds. Adjusted earnings before interest, tax, depreciation and amortization rose to 610 million pounds from 517 million pounds a year earlier.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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