Jan. 12 (Bloomberg) -- London’s Heathrow airport’s 66 million annual passengers will ultimately have to foot the bill for making Europe’s busiest hub snow-proof if Britain’s winters turn permanently colder, according to owner BAA Ltd.
Airlines concerned about a four-day shutdown after 90 minutes of snow last month need to renegotiate Heathrow’s emergency plan with BAA, leading to an increase in operating fees that carriers will probably pass to customers, Chief Executive Officer Colin Matthews said today in an interview.
Europe’s busiest airport recorded a 9.5 percent drop in passengers as Britain’s coldest December on record shut runways across the country at a cost of 24 million pounds ($38 million) to BAA. Matthews said carriers can’t escape blame because they signed up to a recovery plan that wasn’t designed for deep snow.
“The only source of money to pay for such facilities in the long run is passengers,” the CEO said by phone. “Therefore we and the airlines have to take decisions, in the end, based on what is a reasonable cost for passengers to bear in order to support having, say, 10,000 beds, or 100,000 or 400,000 in the event of substantial disruption. That’s not an easy question.”
BAA has already pledged to spend 10 million pounds on new equipment at Heathrow after heavy snowfalls last winter and the past two months showed that current measures -- based on years of lighter snow -- were insufficient, Matthews said.
While BAA is “sorry” that flights were cancelled after the most recent snowfall on Dec. 18, the blizzard, though short, produced 16 centimeters of snow or 6.3 inches, more than twice the maximum for at least 30 years “and possibly ever,” he said.
“If Heathrow stops for a day it costs us several million pounds and that will buy you a lot of snowplows,” Matthews said. “So anyone who thinks that penny pinching caused us not to buy equipment would be wholly irrational.”
Virgin Atlantic Airways Ltd., Heathrow’s second-biggest operator, said this week the closures cost 10 million pounds and that it will withhold landing and parking fees to help prompt BAA to take a “robust” approach in a probe into the breakdown.
“Passengers benefit when airlines and airports collaborate and suffer when we fight, so we’ll not fight in public,” the BAA CEO said. “I’ll talk to Virgin and we’ll resolve it in private.”
Matthews said there’s no legal basis for carriers to withhold charges and that the snow-clearance plan discussed several times with them through the year was “explicit” about the degree of disruption that would accompany heavy falls.
“Virtually no decisions are taken in isolation,” he said. “It’s an interesting challenge to get companies who compete so fiercely with each other to agree on common approaches at Heathrow, but that’s the thing we have to do.”
The snowfalls wiped 50 million pounds from earnings at British Airways Plc, Heathrow’s biggest customer, and Flybe Group Plc, the U.K.’s largest domestic carrier, said today that it lost about 6 million pounds. BAA’s own losses provide sufficient encouragement to fix the situation, Matthews said.
“The cost of any disruption to BAA’s airports is significant and a strong financial incentive for us to continue to make Heathrow more resilient,” he said. “We must carefully examine the snow plan agreed with airlines and strengthen it to protect against such unprecedented weather.”
Regulators should have a greater say in determining the amount of snow-clearing equipment that airports are obliged to have access to, said Ashley Steel, the global head of transport at consulting company KPMG. The disruptions before the Christmas holidays will probably also reignite the debate about the lack of capacity at Heathrow, according to the consultant.
Plans for a third runway were scrapped by Prime Minister David Cameron in May in response to the views of some members of the coalition government he leads.
“Currently Heathrow is running at almost full capacity, which means that any incident, be it weather, ash or strikes, will affect arrivals and departures at the airport,” Steel said in an e-mailed statement.
BAA, a subsidiary of Spanish construction company Ferrovial SA, said traffic at all six of its U.K. airports fell, resulting in a decline of almost 11 percent overall.
In terms of reduced earnings, BAA said, 19 million pounds was lost at Heathrow, 1 million pounds at London’s Stansted and 4 million pounds across four other terminals. The biggest declines in traffic were a 22 percent drop at Southampton on England’s south coast and one of 18.4 percent in Edinburgh.
Of the profit reduction at Heathrow, 40 percent came from extra operating expenses, including caring for passengers, with the rest from the reduction in revenue, BAA said. The company’s inquiry into the disruption is being chaired by non-executive director David Begg and will be published in March, it said.
For 2010 as a whole, passenger numbers fell 0.2 percent to 65.7 million at Heathrow and 2.8 percent to 103.9 million for the group.
Demand was hurt by strikes at British Airways Plc and the eruption of an Icelandic volcano, as well as bad weather, and on an underlying basis Heathrow traffic increased 3.4 percent, with December “broadly flat,” said BAA.
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