2nd UPDATE: Air Industry Faces Mixed Bag From UK Coalition
12 Mai 2010 - 7:01PM
Dow Jones News
Policies unveiled by the new ruling coalition government in the
U.K. Wednesday will prove a mixed bag for the air transport
industry, with the previous government's plans for a new runway at
Heathrow airport now scrapped, while airlines will be taxed per
plane rather than per passenger.
The previous Labour government had approved plans for a third
runway at Heathrow, London's main airport that is owned by Spain's
Grupo Ferrovial SA (FER.MC). The airport, the world's busiest
international passenger airport, is running at 98% capacity and
Labour had backed calls from airlines and the business community
that an expansion was necessary to contribute to economic growth.
However, the new Conservative and Liberal Democrat coalition has
backed arguments by environmentalists that a third runway isn't
necessary if a better high-speed rail link is built linking parts
of the U.K.
The coalition has pledged to establish the high-speed rail
network and has refused to consider new runways at London's Gatwick
and Stansted airports, effectively blocking any substantial
increase in air-traffic in southeast England.
The move is bad news for Ferrovial's U.K. airports group BAA
Ltd., which had hoped the third runway would help drive revenue
growth at Heathrow.
Since Ferrovial bought BAA in 2006 for GBP10.3 billion, taking
on a large debt to fund the purchase, the Spanish company has faced
several hurdles. It sold Gatwick airport and is being forced to
sell one of its Scottish airports after the U.K.'s antitrust
regulator ruled that it was too dominant in U.K. airports. BAA
originally owned seven U.K. airports, including Heathrow, Gatwick
and Stansted.
"We will work with the new government to ensure that airports
policy provides the strong international trading connections on
which the U.K.'s jobs and future competitiveness depend," said a
spokeswoman for BAA.
The end of plans for a third runway at Heathrow will be a blow
to legacy airlines, which had been keen to expand capacity at an
already-congested airport.
British Airways PLC (BAY.LN) "remains of the view that a third
runway at our national hub airport, Heathrow, would have very
substantial economic benefits for the whole of the United Kingdom,"
said a spokesman for the airline. "The incoming government is well
aware of our view but has taken a different position."
However, BA, which is based at the airport and holds the most
takeoff and landing slots of any airline, is in the process of
merging with Spanish airline Iberia Lineas Aereas de Espana SA
(IBLA.MC) and can now focus on growing at Madrid airport, which has
excess capacity.
The BA spokesman said the airline is "content for matters to
rest there," and it looks "forward to working with the new
government to play our full part in the U.K.'s economic
recovery."
"As Britain's only global network carrier, we are committed to
providing the best possible international air links to support the
country's businesses and jobs," he added.
However, there was better news for low-cost airlines and travel
companies as the new government pledged to replace the existing tax
on passengers flying with a new tax per plane--a move that had been
supported by many airlines, particularly those that typically fly
fuller planes. Those airlines argued that a tax per passenger
unfairly hit more efficient airlines that fill their planes.
"The two government parties have made a firm manifesto
commitment to reform the daft Air Passenger Duty, which taxes full
planes but not empty ones," said Andy Harrison, chief executive of
low-cost airline easyJet PLC (EZJ.LN). "It's now time to act and
make Air Passenger Duty a fairer and greener tax without increasing
the tax burden on the flying public."
Meanwhile, TUI Travel PLC (TT.LN) has long argued for this
change that will reward airlines like Thomson Airways that operates
with the highest load factors in the industry, and will incentivise
carbon efficient behaviour.
"We are delighted that Government has accepted the force of
these arguments," said TUI Chief Executive Peter Long in an emailed
response to questions.
BA was less impressed with the plans.
"Air travel from the U.K. is already the most heavily taxed in
the world. We believe that aviation's impact on climate change is
most effectively addressed by the inclusion of airlines within the
E.U. emissions trading scheme which will happen from 2012," the
airline said.
"The existing Air Passenger Duty is not used to fund
environmental or infrastructure benefits, and there is no guarantee
that a flight-based tax would," it added.
The airline also warned that "increased taxation on the U.K.
aviation industry will create a financial incentive for customers
to fly via continental hubs rather than direct from or transitting
through U.K. airports, which could actually lead to higher
emissions as well as financially disadvantage the U.K. travel
industry."
-By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299;
kaveri.niththyananthan@dowjones.com
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