Relations between airlines and airports plunge as pandemic ravages profits
Airlines and airports have been united in the face of adversity. British Airways, Virgin Atlantic and Heathrow bosses posed for photo ops on an empty runway, held joint press conferences and met ministers together as they pushed to ease travel restrictions and cheer people on to return to heaven.
But now the solidarity is over, with pandemic disruption extending into a third year and aviation losses expected to run into the hundreds of billions of dollars.
“A bleeding airport is music to my ears,” said Willie Walsh, the former British Airways director who now heads the International Air Transport Association, the airline trade group, and runs a campaign against the increase in airport charges.
Although Walsh qualified his remarks by admitting some concern for struggling small airports, he added: “But for most of these large quasi-monopoly or monopoly airports, I have no sympathy.”
Airlines, which typically pass landing fees directly to passengers through ticket prices, desperately want lower fees to encourage people to return to the skies through reduced fares as financial pressure mounts. on their balance sheets increases.
Iata has forecast that global airlines will lose another $11 billion this year, bringing overall net losses since 2020 to more than $200 billion. Airlines argue that airport owners, often deep-pocketed long-term infrastructure investors, should be forced to share the pain.
But many airports are instead pushing to raise fees to help cover pandemic-related losses and invest in infrastructure.
Airport bosses say their business is constrained by strict regulations that control their pricing structures, meaning they cannot flex their prices up and down like airlines.
They also have particularly high fixed costs, including providing security and emergency services, regardless of the number of people traveling.
“It’s a perennial hot potato, but the pressure has increased because of the pandemic. Both sides have suffered a lot,” said John Strickland, director of JLS, an aviation consultancy.
The biggest flashpoint over fees came at Heathrow in London, which has lost its crown as Europe’s busiest airport during the pandemic and wants regulators to let it hike landing fees up to 90% over the next five years.
That request, along with a separate offer to recoup £2billion in pandemic losses through higher charges, were rejected. Instead, the UK Civil Aviation Authority has allowed the airport to raise landing fees by 37 per cent to £30.19 per passenger for an interim period from the start of this year , while a longer-term agreement is reached.
It has drawn fury from the major airlines that use the airport, including BA and Virgin Atlantic, two companies that are suffering billions of dollars in pandemic losses between them.
While Heathrow and the airlines used to hold crisis meetings to discuss how to pressure the government over travel restrictions, the airlines have instead started meeting for ‘war play’ how to fight Heathrow, according to a person familiar with the discussions.
Some in the industry expect the case to go to court, one person said.
However, Chris Annetts, Heathrow’s chief strategy officer, played down the tensions and said debates over airport charges “went back and forth, generating plenty of heated commentary along the way”.
“Airports and airlines work more closely together than trading partners in most other industries,” he said.
Other airports have also announced plans to increase charges, including Amsterdam Airport Schiphol, which is pushing for a 37% increase, as well as South African and Canadian airports, according to Iata.
An executive of a major European airport investor said that after two years investors were beginning to chafe at having to bear large losses in regulated industries designed during privatization to offer low return but low risk.
Olivier Jankovec, chief executive of ACI Europe, the airport trade body, believes airlines have yet to come to terms with a decades-old shift in the aviation industry, with half of Europe’s airports privatized and facing their own commercial considerations .
“Airports have their own shareholders to remunerate and are no longer recipients of massive public funding. There has been a fundamental transformation and shift that Iata is not close to accepting and acknowledging. . . they want it to go back to the good old days when airports were used as instruments of subsidy for airlines,” he said.
But while some hub airports have been confident enough to raise charges during the crisis, the dynamic reverses for smaller airports with less bargaining power.
They have come under relentless pressure from airlines, which have taken advantage of the crisis to redesign their networks, and have insisted that many smaller airports reduce their fees, sometimes to zero, if they want to do business.
These airports must then rely on other sources of revenue, including retail, catering and parking to survive. Others receive government subsidies and are treated as loss leaders to encourage tourism or economic development.
Ryanair, Europe’s largest airline, announced this month that it would close its base in Frankfurt and move five planes to airports that had agreed to lower fares to stimulate demand.
“Efficient operations and competitive airport charges provide the foundation from which Ryanair can deliver long-term traffic growth and increased connectivity for airports and regions,” said Jason McGuinness, Chief Commercial Officer of Ryanair.
Another airport that has chosen to work with airlines on landing fees is London City Airport, which is popular with business travelers due to its proximity to central London.
“In some areas you can see relations becoming strained. It was certainly something we sought to avoid,” said Robert Sinclair, chief executive of London City.
Gatwick, another airport with limited leverage given the number of airlines that have suspended operations there during the pandemic, said its landing fees would rise with inflation.
Ultimately, some industry executives believe the pandemic has undermined the regulatory system in place at busy airports such as Heathrow, where costs are divided by passenger.
But few expect the industry to be able to unite around a new funding model at a time of severe financial stress.
“They can’t live together and can’t live without each other,” Strickland said.