Regulatory changes needed to end Heathrow hell

July 24, 2009

- Rupert Darwall is a guest columnist. The views expressed are his own. A London-based strategist, he is author of Reluctant Managers, a study of Whitehall performance (KPMG, 2006) –

If April is the cruellest month, then July can be awful for people using Heathrow. Business travel is still humming and the holiday season is getting into full swing.

Even with Terminal 5, Heathrow can’t take the strain. Its two runways are used at 98.5 percent capacity and there are simply not enough gates and stands. A ten-minute delay is programmed into Heathrow’s schedule. Because there’s no spare capacity, when things go wrong, the slightest change — even in the weather — can lead to aircraft being held in stacks and flights being cancelled

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You’d have thought that the UK government’s review of the way Heathrow is regulated, consultation on which ended last month, would want to root out what causes Heathrow to be so congested, but you’d be wrong.

Although the Competition Commission believes that the way the Civil Aviation Authority (CAA) regulates Heathrow stifles competition and contributes to the airport’s poor performance, the government seems reluctant to do anything about it.

Perhaps it feels that enough is already being done by forcing BAA <FER.MC>, which owns London’s three main airports, to sell two of them. But that on its own won’t make life any easier for the millions of passengers who are forced to endure Heathrow misery each year.

Heathrow is congested because incentives in the system reward congestion. BAA is paid as a toll collector, not for delivering a punctual and reliable schedule, so it makes more money the more passengers are pushed through Heathrow’s overloaded terminals and runways.

Another perverse incentive is the way BAA’s returns are linked to the size of its regulated asset base. Because the charges it can levy on airlines are capped below market rates and linked firmly to the size of the airport’s regulatory asset base, it encourages the operator to add to its assets to the maximum extent possible, irrespective of the value for money of the new investment. Hence the incredible costs it runs up on new investments. Terminal 5 cost 5 billion pounds and the third runway and terminal 6 are projected to cost 10 billion pounds.

Rewarding BAA for building high cost capacity means the only way for airlines to contain the rise in passenger charges is by sucking in huge increases in transfer passengers to keep passenger charges within the bounds of affordability. The perceived environmental nuisance makes it much harder for Heathrow to get planning approval for new runway capacity needed to reduce congestion.

BAA can’t be blamed for responding to incentives set by the CAA and Heathrow is now better managed than under the old BAA.

Unfortunately all the signs are that the government is blowing the opportunity to get regulation right. The review has focused on the irrelevant area of the CAA’s legal duties. It did not, as the Competition Commission suggested, analyse how the CAA’s regulatory approach has caused Heathrow’s poor performance.

If Heathrow is ever going to be an efficient airport, the place to start is with regulation:
– Give BAA responsibility for defining and managing Heathrow’s current capacity
– Pay BAA for running a punctual airport and penalises it for not doing so
– Replace the incentive for BAA to bloat its investment programme with ones that are better aligned with its customers’ interests

Changing the CAA’s legal duties to put the passenger first without changing the detailed mechanics sounds nice but is a formula for gridlock. The cure for Heathrow hassle lies in a better system of regulation. It isn’t too late for the government to change tack and address the problems of London’s main airport. But if it just leaves the CAA to muddle on under the current system, Heathrow’s passengers face many more summers of misery ahead.
(Edited by David Evans)

Comments

I live in the western part of London, which is under the fly path, and I use Heathrow regularly. Even with delays and the volume of traffic going to Heathrow I love using this wonderful and Amazing Airport. It should be named as a London/UK gateway, as it is the first point any traveler experiences about our wonderful country.
Due the Global warming debate; most people are against the expansion of Heathrow, but because it provides convenience to millions of travelers ever year and it is a huge economical hub for this part of the capital; I am whole heartedly in favor of its expansion, especially during this economic downturn.

We need a third runway for Heathrow, to better accommodate the increasing number of people that use its services. People do say that don’t like Heathrow, but deep down in their hearts they love it, hence the return of time and time again.

Posted by Siddiq | Report as abusive
 

Heathrow was always in the wrong place a planning error which brings misery to millions in west London, Berkshire and beyond.

There is no economic case for expansion of any kind, the government has colluded and bent every truth they could to get this through and simply the environmental cost to high.

The sooner our current government get ousted the better, no other major party believes that Heathrow is an answer to non existent market now and when the economy recovers.

I travel on planes too and I am always shocked when I get on a plane which is less than half full.

I suspect the person who posted the previous comment has a vested interest.

Posted by William Barrett | Report as abusive
 

Heathrow is a dump and should have been closed down 40 years ago in favour of building a new airport out of town. It’s a hell-hole surrounded by a hell-hole of a town (Hounslow) that houses an army of unskilled and poorly paid workers who try in vain to stop it collapsing in on itself on a regular basis.

Unfortunately, each increment of further development compounds the error, making it less likely that London will ever get a decent world class airport.

Posted by Rob | Report as abusive
 

Having lived in the general vicinity of Heathrow for most of my life I take issue with the two previous comments.

Heathrow deveoped from an existing small airport and at that time was an out of town airport. It is London that has expanded outwards to encompass Heathrow. It is easy but trite to suggest ‘planning error’ with the benefit of hindsight 60 years on.

To suggest that there is no economic case for expansion flies in the face of facts. An airport that runs at around 99% of capacity cries out for expansion.

Contrast Heathrow with Roissy (Charles de Gaulle): they are both about the same distance from their city centres but Roissy has 4 runways – with far less traffic than Heathrow.

Heathrow is very much a world class airport. The older Terminals 1-3 are to be replaced and modernised to better fit 21st century needs.

There are obviously huge numbers of passengers who choose to use Heathrow with its excellent transport links to London and beyond. It’s success is despite constant opposition from both vested interests and the ill-informed and contributes hugely to the economy of London and the M4 hi-tech corridor (including Berkshire), the latter of which would probably still have agriculture as its main occupation were it not for Heathrow.

It is high time such a crucial part of our infrastructure ceased to be a political football and proper long term planning for it’s expansion and development made the subject of cross-party agreement.

Posted by Richard | Report as abusive
 

We are where we are with Heathrow. The UK has been stiffled by a lack of vision by successive governments, a lack of commitment and a lack of money to make the big jump forward and relocate Heathrow. For 40 years its been a crowded building site trapped within the perimeter of an ever expending London. The extra runway is another fudge in this long running process. But we have managed to keep in running somehow! Will the additional Olympics traffic in thre years time prove once and for all that we need another airport? – but not an expanded Heathrow

Posted by J Sewell | Report as abusive
 

Passengers at Heathrow are treated worse than cattle, herded through inadequate security and trundled on uncomfortable buses for miles past depressing and decaying airport buildings. I last passed through about two years ago and vowed never to repeat the experience.

They could try to improve things by actually finishing a building then leaving it alone rather than constant tinkering, a master plan would help.

Give me Manchester any day.

 
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