Aviation: Heathrow offers rebates for higher load factors

March 7, 2019

Heathrow Airport is offering an incentive that encourages airlines to accommodate growing passenger numbers by increasing load factors (the percentage of seats occupied).  The overall load factor for flights departing and arriving London's busiest air terminal are below the International Air Transport Association average, which means there is room for grester throughput without increasing flights.

 

Under the terms of the agreement, Heathrow will establish a new incentive that will encourage airlines to increase passenger numbers ahead of the airport's expansion. 

 

Heathrow is offering airlines rebates on passenger charges if they improve load factors.  (Heathrow Airport)

 

Managers say that increasing the percentage of seats occupied on flights into and out of the Heathrow will help spread the cost of expansion across a wider passenger base, and will enable it to meet government targets for affordable growth at the facility.  The deal that has been signed with carriers using the airport could result in passenger charges being reduced by between 10% and 20% if occupancy rates at Heathrow reach global averages.

 

The UK Civil Aviation Authority (CAA) is responsible for the regulatory framework for airports.  The charges that the CAA allows are based on the retail price index (RPI; inflation), adjusted to account for factors such as capital investment and service quality.  The deals being Heathrow has offered to airlines are based on commercial rebates that supplement the existing regulations and do not usurp the CAA's determinations.  The CAA is said to be supportive of the arrangement, which should remain in force through 2021 once it is formally approved.

 

Heathrow CEO John Holland-Kaye said: "Over the past several months we’ve been working hard with our airline partners to agree a deal on airport charges to 2021.  We are delighted that the result is the first-ever commercial agreement at Heathrow which will unlock hundreds of millions of pounds of potential investment for our passengers."

 

Editorial comment:  Heathrow's ultimate target may be to spread the cost of the forthcoming development of a 3rd runway and associated terminal infrastructure across more passengers, at a time when its two runways are fully utilised and growth cannot come from more aircraft movements.  Increasing load factors will also lead to more optimal use of existing scarce runway resources (slots) at Europe's busiest airport.

 

However, air transport is coming under increasing pressure from climate campaigners and it is vital the industry is seen to be doing everything it can to mitigate its impact.  Seats on airliners are perishable commodities - once the aircraft departs they cannot be sold - and attempts to reduce waste are laudable.  The fewer seats that remain unoccupied the better - not only in terms of aviation's contribution to climate change, but also for airline economics and potentially lower fares.

 

Text © The Aviation Oracle

 

 

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