The UK aviation regulator has proposed that Heathrow be compelled to permit other companies to design and build its third runway and new terminal, arguing that rival bids could help control construction expenses.
CAA Review Proposes Regulatory Changes
A long-awaited review by the Civil Aviation Authority (CAA) recommends alterations to the regulatory framework governing Heathrow's operations and cost recovery. Among the suggestions is requiring the airport operator to solicit bids from external businesses for designing, building, and operating parts of the delayed expansion project. The CAA stated that this approach "would allow for direct competition between Heathrow and an alternative developer… [that] could encourage competition and efficiency."
Radical Suggestion for Terminal Development
The most far-reaching proposal, which would require special government approval, would enable another developer to tender for building and running its own terminals at Heathrow, similar to a model used at JFK Airport in New York.
Last November, ministers endorsed Heathrow's plan for the runway to be operational by 2035, over a rival proposal from Arora Group. However, the airport operator is still seeking formal planning permission to begin construction by 2029.
Earlier this month, it emerged that Philip Jansen, Heathrow's new chair, had initiated talks with airlines and Arora Group's chair, Surinder Arora, to advance expansion plans amid disputes over the project's ultimate cost to carriers, retailers, and passengers.
British Airways dominates Heathrow, holding over 50% of slots. Luis Gallego, CEO of BA's parent company, International Airlines Group, has insisted that the cost of the third runway and associated works must be capped at £30 billion.
Heathrow is considered Europe's most expensive airport, and in March the CAA rejected its plans to significantly raise landing fees to fund a multibillion-pound upgrade.
Arora has been promoting his own £25 billion expansion scheme and is part of Heathrow Reimagined, which also includes BA and Virgin, campaigning to drastically reduce operating costs at the airport.
"Two years ago competition at Heathrow wasn't on the cards and now is very much alive and kicking because the case for change is so strong," said Arora, founder of Arora Group. "We welcome this consultation from the CAA."
The CAA acknowledged potential difficulties in implementing a model allowing rival bidders. "This model could encourage competition and efficiency," the regulator said. "Nonetheless, there would also be some complications in implementing such a model. It would be important to ensure that an approach involving the build, operation, ownership of assets and direct competition with Heathrow worked in a way to further the interests of consumers across the whole airport."
Heathrow, however, warned that the proposals could "undermine efforts" to expand the airport and generate growth. A Heathrow spokesperson said: "Economic growth is key to tackling the cost of living crisis. We have a clear plan to invest billions of pounds of private capital to upgrade and expand the UK's hub airport – creating jobs and growth across the country. We support reform that boosts efficiency, cuts red tape and keeps investment flowing, but not proposals which will undermine our efforts to improve the airport for consumers or delay the economic growth the country needs. We look forward to working with government and the regulator to turn these proposals into positive outcomes."
Heathrow is owned by a consortium of investors led by the French company Ardian and includes the sovereign wealth funds of Qatar, Singapore, and Saudi Arabia.
