Heathrow passengers could be paying as much as 10 per cent more on fares because they lack an alternative to flying with British Airways, a new study has found.
British Airways’ parent company IAG currently operates over half of all take-off and landing slots at Heathrow. The next largest groups are Lufthansa, which controls eight per cent, and Virgin Atlantic and Delta which handles seven per cent.
The report by WPI Economics – commissioned by Virgin and using estimates supplied by the airline – says that Heathrow’s disputed £14bn expansion plan offers a “golden opportunity” to break the IAG “monopoly” because more than 350 take-off and landing slots are expected to be created.
The authors of the report argue that this should lead to reform of the way slots are allocated when the third runway is built. They also argue that a second flag carrier, which is able to carry as many as 20m passengers annually, needs to be established to link domestic and European routes to international destinations, bolster competition and drive down fares.
According to the report, IAG operated 77 monopoly routes from Heathrow this summer to destinations including San Diego, Madrid and Osaka, and the lack of an alternative airline has resulted in passengers paying more in fares.
For example, it says a direct return flight from Heathrow to Osaka with British Airways could be slashed from £838 to £754 if there were another airline to choose from.
Former senior economist at the Department for Transport (DfT) and co-author of the report, James Edgar, said: “The current system of allocating take off and landing slots has contributed to one airline group controlling over half of the available capacity at Heathrow.
“This limits choice for passengers and international evidence suggests this could well increase fares. Expansion of capacity at Heathrow provides the opportunity to increase choice and create the UK’s second national flag carrier to extend the global reach of British business and consumers alike. ”
A Virgin spokesperson said: “It’s worrying that one in four people flying from Heathrow have no choice. It’s essential that Heathrow expansion leads to effective competition that delivers for the whole nation and this simply cannot be achieved by the continued dominance of one airline group. Virgin Atlantic is best placed to be Britain’s second flag carrier because we already compete at Heathrow and we have ambitious plans to open up new domestic, short and long-haul routes.”
A spokesperson for IAG said: “IAG welcomes competition but is surprised by Virgin Atlantic’s economic report.
“In 2001 British Airways had 36.2 per cent of Heathrow slots. That rose to 52.6 per cent in 2016 as British Airways bought slots at the airport. In 2001 Virgin Atlantic had 2.3 per cent of Heathrow slots – this rose to 3.3 per cent in 2016.
“Virgin had the opportunity to increase its slot share at Heathrow to 19.7 per cent by buying slots but it chose not to do so. The airline has failed to create more competition at the airport – it closed Little Red on domestic routes, pulled off long haul routes and rents out the slots it owns to other airlines to fly.”