Tensions are escalating between Heathrow Airport and airlines over plans to build a third runway at Europe's largest airport. The airport says expansion is unavoidable to ease saturation and contribute to the British economy, but airlines are pushing back, citing concerns about excessive expense.
According to the Financial Times (FT), Heathrow is struggling ahead of a £33 billion (about 64.79 trillion won) expansion project. The airport plans to build a 3,500-meter runway and a new terminal complex to significantly increase slots (slot, takeoff and landing rights), but airlines are expressing opposition over concerns that construction expense will be passed on to them.
Heathrow is in fact considered one of the busiest airports in the world. As of last year, it handled an average of 231,000 passengers a day, but it has only two runways. That is far fewer than France's Charles de Gaulle Airport (four), Germany's Frankfurt Airport (four), and the Netherlands' Schiphol Airport (six).
The airport says adding a runway could lift the United Kingdom's gross domestic product (GDP) by 0.5 percentage points (P) by 2050. It says improving security screening and baggage handling systems could allow for about 10 million more passengers a year by 2031, but anything beyond that is impossible without adding a runway.
Airlines, however, say the expense structure must be fixed before construction begins. Since its privatization in 1986, Heathrow has adopted a "regulated asset base (RAB)" model, recouping investment by charging airlines airport fees. If the airport gets airlines to approve its five-year investment plans, airlines bear part of any excess expense. Airlines have criticized this as a "distorted system in which the airport's revenue grows as it increases expense."
Critics also say expense could balloon excessively during construction. Heathrow previously estimated £24 million in expense in 2011 for work on the outer wall of a tunnel under the northern runway, but as the project has continued to this day, expense has reportedly exceeded £300 million. Airlines estimate the final bill for the third runway project could reach as much as £50 billion, raising concerns they could be forced to shoulder it all.
There are also said to be physical hurdles to building the runway. The work would require demolishing about 750 homes in nearby villages and transferring part of the M25, London's orbital motorway. The airport says it will build a new segment next to the existing road and proceed with step-by-step consolidation, but the aviation industry and road groups are warning of potential traffic chaos.
The industry sees the expansion decision as resting with the United Kingdom Civil Aviation Authority (CAA) this summer. The CAA last year released a 91-page report saying it could consider a range of options from adjusting the current RAB business model to introducing competitive bidding among terminal operators. If the CAA overhauls the regulatory framework, Ardian, the French private equity fund, and sovereign wealth funds from Qatar, Saudi Arabia, and Singapore, which hold equity in Heathrow, could redirect runway expansion funds to infrastructure projects in the Middle East and Asia.
Luis Gallego, chief executive officer (CEO) of International Airlines Group (IAG), Heathrow's largest customer, said, "We support expansion, but the runway construction project risks causing serious harm to airlines," voicing opposition. The airline is known to hold more than half of Heathrow's roughly 1,300 daily slots.