Lord Deighton is a former Commercial Secretary to the Treasury, served as Chief Executive of the London Organising Committee of the Olympic and Paralympic Games (LOCOG), and is the current Chairman of the Economist Group and Heathrow Airport
Throughout the 90s, airlines set aside their competitive rivalries to vociferously campaign to drive down charges at Heathrow – just as they are doing now. The natural instinct is to always want to pay less, but when you’re talking about Britain’s hub airport, that is a dangerous road to venture down. Ask any traveller, and they will tell you that the Heathrow of the late 90s and early 2000s was a national embarrassment. The result of lower airport charges was to cut off investment in passenger service.
Heathrow was ranked one of the worst airports in the world, plagued by persistent delays, dingy departure halls, and queues so long you’d wonder how many birthdays you might celebrate before you boarded your flight. 41 percent of passengers had delays longer than 15 minutes and 60 percent of our passengers reported that their journeys didn’t meet their standards.
In 2006, Heathrow’s current shareholders took over and we decided we wanted to do better. It’s true, Heathrow is a private business owned by a group of shareholders from across the world and right here in the UK, many of whom rely on stable dividends to pay pensions – including the pensions for Britain’s university lecturers. We believe that for Heathrow to succeed, we need to deliver a good service for our passengers. That’s why our mission is “to give passengers the best airport service in the world”. Every day, we focus on providing a good service to passengers, who in turn then choose to travel through Heathrow and support the flights that underpin the trade, tourism and investment that grow our economy.
When I led the 2012 Olympics, one of my biggest concerns was whether Heathrow would be able to cope with arriving and departing Olympians. As it turned out, Heathrow coped brilliantly, and that was the first evidence of the turnaround. More and more people were choosing to fly through Heathrow, from 67m in 2006 to 81m pre-COVID. Cargo grew by 16% delivering the trade and tourism critical to the UK’s success on the world stage.
Yes, airport charges increased, but it kickstarted a £12bn investment programme in passenger service that has delivered a better, more resilient and passenger-focussed hub airport that Britain can be proud of. Now, over 80% of flights depart within 15 minutes of schedule and over 80% of passengers have a “very good” or “excellent” experience. Passengers now rank Heathrow as one of the top 10 airports globally.
In what should be viewed as one of the greatest infrastructure success stories of our time, all of this was delivered without a penny of taxpayer money. The stability of the Civil Aviation Authority’s regulation is what unlocked that private investment. The RAB-based model which the CAA uses has been so successful in attracting long-term private investment that the Government is using it deliver other major national projects like nuclear energy.
That’s not to say that there isn’t room for improvement in the regulatory model – it has been a hard road for the investors who made this possible. Heathrow shareholder returns have been negative in real terms since 2006 and most years we have not been able to pay any dividends. But it has delivered clear benefits for passengers. The Government should be incentivising private investment to reboot the economy, but to do that on the scale needed, they will need to make sure investors are able to get a fair return.
The airport charge has also allowed us to invest in boosting Britain’s regional connectivity. We see first-hand every day the economic catalyst a connection to Heathrow provides a community in the UK. It drives increased inward investment and more inbound tourism, as well as supporting Britain’s great exporters to trade in global markets. That’s why in 2017 we introduced a discount for domestic passengers to cut the cost of flying within the UK. We are the only UK airport to offer a domestic discount to support connectivity across the UK and beyond. The pandemic hit us hard, but despite losing over £4bn so far from COVID, we have continued to offer a discount for domestic flights.
We were also one of the leading voices calling for HM Treasury to cut domestic Air Passenger Duty – which is now set to come into force early next year. When the pandemic gave opportunities for new airlines and routes to be served on a temporary basis, we pushed the Government to support measures that would allow these new entrants the ability to continue to operate, even when existing airlines began to return. We also continue to urge the Government to use new powers it has gained after Brexit to protect capacity at the airport solely for domestic services to ensure that no part of the UK is cut off from the benefits of a hub connection.
Meanwhile, airlines have grown profitable route networks – 6 of the 10 most valuable routes in the world start at Heathrow, and there are over 30 keen to start operating there if there were spare slots. Indeed, since 2012, airlines have used Heathrow’s price cap and the capacity constraints at the airport to generate an additional £25bn in extra airfares from passengers. The best way to level-up and promote Global Britain is to deliver a great service for passengers today, and to expand the UK’s hub airport as soon as possible. No surprise that some of these same airlines are against this, because more capacity means more competition, putting downward pressure on the ticket prices they can charge.
Over the next five years, we plan to invest £4bn in passenger upgrades – things like a new baggage system for Terminal 2 and streamlined security so that you can keep your liquids and laptops in your bags. All of this can be delivered without passengers paying a penny more on ticket prices. The truth airlines don’t like to mention is that unlike Heathrow, which has its prices capped, they set their airfares on what the market will bear, not on their cost base – and passengers will have noticed that airfares have gone up by as much as 100% so far this year.
A higher airport charge would deliver clear benefits for passengers, but reduce airline margins slightly – that’s why they argue against it. What was true in the 90s is just as true today – just because airlines argue for a cheaper plan, that doesn’t mean it delivers anything but trouble for passengers. Underinvestment means queues, delays and a reputation for hassle.
In the end, the CAA will decide what is best for passengers, while ensuring Heathrow has the minimum cashflow required to deliver it, based on the evidence it has gathered for over two years. We will continue to focus on delivering a great service for our passengers, particularly as we ramp-up for the summer travel season. We encourage our airlines to focus their efforts with us on working together to get people away on their journeys as smoothly as possible. That is what is in the best interests of passengers.
Lord Deighton is a former Commercial Secretary to the Treasury, served as Chief Executive of the London Organising Committee of the Olympic and Paralympic Games (LOCOG), and is the current Chairman of the Economist Group and Heathrow Airport
Throughout the 90s, airlines set aside their competitive rivalries to vociferously campaign to drive down charges at Heathrow – just as they are doing now. The natural instinct is to always want to pay less, but when you’re talking about Britain’s hub airport, that is a dangerous road to venture down. Ask any traveller, and they will tell you that the Heathrow of the late 90s and early 2000s was a national embarrassment. The result of lower airport charges was to cut off investment in passenger service.
Heathrow was ranked one of the worst airports in the world, plagued by persistent delays, dingy departure halls, and queues so long you’d wonder how many birthdays you might celebrate before you boarded your flight. 41 percent of passengers had delays longer than 15 minutes and 60 percent of our passengers reported that their journeys didn’t meet their standards.
In 2006, Heathrow’s current shareholders took over and we decided we wanted to do better. It’s true, Heathrow is a private business owned by a group of shareholders from across the world and right here in the UK, many of whom rely on stable dividends to pay pensions – including the pensions for Britain’s university lecturers. We believe that for Heathrow to succeed, we need to deliver a good service for our passengers. That’s why our mission is “to give passengers the best airport service in the world”. Every day, we focus on providing a good service to passengers, who in turn then choose to travel through Heathrow and support the flights that underpin the trade, tourism and investment that grow our economy.
When I led the 2012 Olympics, one of my biggest concerns was whether Heathrow would be able to cope with arriving and departing Olympians. As it turned out, Heathrow coped brilliantly, and that was the first evidence of the turnaround. More and more people were choosing to fly through Heathrow, from 67m in 2006 to 81m pre-COVID. Cargo grew by 16% delivering the trade and tourism critical to the UK’s success on the world stage.
Yes, airport charges increased, but it kickstarted a £12bn investment programme in passenger service that has delivered a better, more resilient and passenger-focussed hub airport that Britain can be proud of. Now, over 80% of flights depart within 15 minutes of schedule and over 80% of passengers have a “very good” or “excellent” experience. Passengers now rank Heathrow as one of the top 10 airports globally.
In what should be viewed as one of the greatest infrastructure success stories of our time, all of this was delivered without a penny of taxpayer money. The stability of the Civil Aviation Authority’s regulation is what unlocked that private investment. The RAB-based model which the CAA uses has been so successful in attracting long-term private investment that the Government is using it deliver other major national projects like nuclear energy.
That’s not to say that there isn’t room for improvement in the regulatory model – it has been a hard road for the investors who made this possible. Heathrow shareholder returns have been negative in real terms since 2006 and most years we have not been able to pay any dividends. But it has delivered clear benefits for passengers. The Government should be incentivising private investment to reboot the economy, but to do that on the scale needed, they will need to make sure investors are able to get a fair return.
The airport charge has also allowed us to invest in boosting Britain’s regional connectivity. We see first-hand every day the economic catalyst a connection to Heathrow provides a community in the UK. It drives increased inward investment and more inbound tourism, as well as supporting Britain’s great exporters to trade in global markets. That’s why in 2017 we introduced a discount for domestic passengers to cut the cost of flying within the UK. We are the only UK airport to offer a domestic discount to support connectivity across the UK and beyond. The pandemic hit us hard, but despite losing over £4bn so far from COVID, we have continued to offer a discount for domestic flights.
We were also one of the leading voices calling for HM Treasury to cut domestic Air Passenger Duty – which is now set to come into force early next year. When the pandemic gave opportunities for new airlines and routes to be served on a temporary basis, we pushed the Government to support measures that would allow these new entrants the ability to continue to operate, even when existing airlines began to return. We also continue to urge the Government to use new powers it has gained after Brexit to protect capacity at the airport solely for domestic services to ensure that no part of the UK is cut off from the benefits of a hub connection.
Meanwhile, airlines have grown profitable route networks – 6 of the 10 most valuable routes in the world start at Heathrow, and there are over 30 keen to start operating there if there were spare slots. Indeed, since 2012, airlines have used Heathrow’s price cap and the capacity constraints at the airport to generate an additional £25bn in extra airfares from passengers. The best way to level-up and promote Global Britain is to deliver a great service for passengers today, and to expand the UK’s hub airport as soon as possible. No surprise that some of these same airlines are against this, because more capacity means more competition, putting downward pressure on the ticket prices they can charge.
Over the next five years, we plan to invest £4bn in passenger upgrades – things like a new baggage system for Terminal 2 and streamlined security so that you can keep your liquids and laptops in your bags. All of this can be delivered without passengers paying a penny more on ticket prices. The truth airlines don’t like to mention is that unlike Heathrow, which has its prices capped, they set their airfares on what the market will bear, not on their cost base – and passengers will have noticed that airfares have gone up by as much as 100% so far this year.
A higher airport charge would deliver clear benefits for passengers, but reduce airline margins slightly – that’s why they argue against it. What was true in the 90s is just as true today – just because airlines argue for a cheaper plan, that doesn’t mean it delivers anything but trouble for passengers. Underinvestment means queues, delays and a reputation for hassle.
In the end, the CAA will decide what is best for passengers, while ensuring Heathrow has the minimum cashflow required to deliver it, based on the evidence it has gathered for over two years. We will continue to focus on delivering a great service for our passengers, particularly as we ramp-up for the summer travel season. We encourage our airlines to focus their efforts with us on working together to get people away on their journeys as smoothly as possible. That is what is in the best interests of passengers.