The fee increase move from Heathrow Airport (LHR) could be perceived as abrupt considering the current Covid-19 climate, potentially prompting airlines to scale back services already reduced schedules or explore moving services to another airport. Therefore, a more tactful approach is needed from Heathrow Airport to ensure it maintains strong relationships with airlines but mitigates against its losses due to the pandemic. The passenger fees are proposed to increase by 90% over the next five years. The proposed charge will increase from £19.36 ($19.36) to £37.63 ($51.49), sparking outrage from several major airlines and IATA chief Willie Walsh.
A more holistic approach to raising cash is needed for Heathrow Airport
The 90% passenger fee increase was never going to be well received by airlines, but on balance, price increases are inevitable across the board in the travel and tourism industry. Heathrow Airport is a private business whose primary aim is to turn a profit, therefore a rise in fees is needed to increase cash flow whilst demand remains subdued. According to Reuters, in April 2021, Heathrow Airport’s losses reached $3.4bn during the pandemic, resulting in a massive shortfall of income at the UK’s busiest airport. Therefore, Heathrow Airport is in desperate need of recuperating the losses.
However, the decision to raise passenger fees to this level has lacked consultation with airlines and appears to have caught many off guard given the difficulties of the pandemic. While Heathrow Airport generates revenue through passenger fees, there are also plenty of other revenue streams such as car parking, retail, cargo operations and the Heathrow Express service. As such, a more subtle increase of prices across all the sectors mentioned above is the most logical and fair approach.
Other airlines have suggested that Heathrow Airport turns to its shareholders for support rather than pass costs on to customers (an approach adopted by many privately owned airlines during the pandemic). For instance, in September 2020, IAG launched a $3.22bn rights issue to shareholders to raise cash for the holdings company. As Heathrow Airport has not done this, it could create more resistance from carriers and result in them moving to rival airports including Gatwick or Stansted. In addition, earlier this year, ITV reported that both airports have won authorisation to increase passenger capacity this year offering scope for new carriers in the coming years.
Consumers will lose out again
The additional passenger fee will likely be passed on to travellers. Passenger confidence is still low and reported prices increases are likely to deter some. According to a GlobalData Q3 2021 global consumer survey*, 30% of respondents were ‘extremely’ concerned about their financial situation, reflecting sensitivity to price fluctuations. In the same survey*, 58% of respondents said that affordability was the main driver for travel, the most popular response within the survey. Therefore, a rise in passenger fees could deter both airlines and passengers.
Currently, it is hard to see who can win but perhaps a more consultative and collaborative approach from both airlines and the airport will enable both parties to negotiate a better deal for everyone moving forwards. Any fee increase should be introduced with cation as negative implications further down the line could occur.
*GlobalData Q3 2021 consumer survey, 22,499 respondents