LONDON, England – Ian Hannam, a leading financier and one of the backers of Heathrow Hub, the independent proposal to expand Heathrow Airport by extending the existing northern runway, has said that Gatwick would find it much more difficult to fund expansion than either of the proposals for expansion at Heathrow.
Mr Hannam’s comments come after the EasyJet CEO Carolyn McCall indicated that a potential 150% increase in passenger charges at Gatwick in order to fund expansion could wipe out low-cost airlines’ profits margins and undermine Gatwick’s low-cost business model.
Mr Hannam, said: “Carolyn McCall’s intervention in this debate is a very powerful one. The business case for expansion at Gatwick is clearly weaker. Unlike the other proposals, Heathrow Hub has already had to raise money to back its concept. It would be the easiest to finance from private sector resources, without making any call on the taxpayer. This is on top of Heathrow Hub’s other advantages, such as enabling arrivals to land on the Western extension during the critical early morning period.”
He added: “Expansion at Heathrow is obviously much lower risk because the airport has pent up demand from a huge number of airlines, a much bigger asset base and bigger revenues. Furthermore, Gatwick is a significantly smaller airport and relatively speaking would have to issue much more debt and equity. The proposed expansion at Gatwick would mean that it could no longer function effectively as a low cost airport.”
The Airport Commission’s consultation documents show that financing Gatwick’s proposal could take its air passenger charge from £9 to a peak of £23, an increase of £14 or 150%. Heathrow Hub’s proposal would increase the air passenger charge at Heathrow from £20 to £30, an increase of £10 or 50%. Heathrow Airport Ltd’s proposal would take the air passenger charge from £20 to £32, an increase of 60%.
Mr Hannam said: “The Airports Commission is also right to draw attention in its consultation documents to the risk to Gatwick’s demand forecasts that such a large increases in passenger charges would bring. As the Commission makes clear, this in turn increases investment risk and therefore cost of capital. Whichever way you look at it, I believe the best option for UK plc is expansion at Heathrow by extending the existing runway as Heathrow Hub proposes.”
Financing UK Airport Expansion
Passenger fees Current passenger Potential increase % increase
charges passenger charges
Heathrow Hub 20.00 * 10.00 50%
Heathrow Airport Ltd 20.00 12.00 60%
Gatwick 9.00 14.00 156%
Equity (£ billion) Current equity Potential new equity % increase
Heathrow Hub 2.70 * 5.10 189%
Heathrow Airport Ltd 2.70 8.40 311%
Gatwick 0.34 3.70 1088%
Debt (£ billion) Current debt Potential new debt % increase
Heathrow Hub 11.70 * 24.90 213%
Heathrow Airport Ltd 11.70 29.90 256%
Gatwick 1.50 14.30 953%
RAB £ billion Current RAB Potential new RAB % increase
Heathrow Hub 14.60 * 24.80 170%
Heathrow Airport Ltd 14.60 28.60 196%
Gatwick 2.50 8.10 324%
Data source: UK Airports Commission
* Heathrow current number
WHAT TO TAKE AWAY FROM THIS ARTICLE:
- Ian Hannam, a leading financier and one of the backers of Heathrow Hub, the independent proposal to expand Heathrow Airport by extending the existing northern runway, has said that Gatwick would find it much more difficult to fund expansion than either of the proposals for expansion at Heathrow.
- Whichever way you look at it, I believe the best option for UK plc is expansion at Heathrow by extending the existing runway as Heathrow Hub proposes.
- “Expansion at Heathrow is obviously much lower risk because the airport has pent up demand from a huge number of airlines, a much bigger asset base and bigger revenues.
