‘Expand Heathrow, not Gatwick’

Bloomberg

British Airways Chief Executive Officer Alex Cruz threw his weight behind the construction of a third runway at London’s Heathrow airport and said the carrier is continuing to develop expansion plans even as it wrestles with the fallout from the UK’s vote to quit the European Union.
With the UK government poised to decide on the location of a new landing strip to serve pent up demand in southeast England, Cruz said that the case for expanding Heathrow is “overwhelming” and that any decision to focus growth on the rival Gatwick airport would be “astonishing.” British Airways, the biggest UK carrier, has major operations at both bases.
Cruz, who became CEO of BA in April, said Heathrow should not be expanded “at any cost” and that his airline “wouldn’t react very well” if a so-called runway tax was levied against users to fund the plan, arguing that the facility’s shareholders should bear development costs. BA parent IAG SA has hubs at four other airports so that growth could easily be directed elsewhere, though there’s no question of the group abandoning Heathrow, he added.
Despite the funding concerns there’s “no business case” for building a second runway at Gatwick, with insufficient demand from airlines and passengers alike, Cruz told British Air Transport Association members in his first speaking engagement since joining BA from IAG’s Vueling discount arm. “That’s why the airport’s two biggest users, ourselves and EasyJet, do not support the idea,” he said, referring to the low-cost carrier that also backs growth at Heathrow.

Announcement Due
Prime Minister Theresa May’s government could make an announcement on a new runway imminently, according to the British Broadcasting Corp., though other reports suggest one is more likely to come next week. Adding an extra runway would allow Heathrow to handle about 135 million passengers a year, up from 75 million now, at a cost of 18 billion pounds.
Politicians have been debating the case for growth at Heathrow for years, with May’s predecessor David Cameron delaying a decision even when a state-appointed commission backed the airport over Gatwick after senior figures in his own Conservative Party expressed concern about the environmental impact.
Cruz said that while BA is “nervous” about uncertainty created by Britain’s vote to quit the European Union, the carrier will still increase capacity next year and is set to announce new short- and long-haul routes in coming months.
Cruz reiterated that IAG, as International Consolidated Airlines Group SA is known, expects to post a “significant” gain in operating profit this year, though the increase won’t match that generated in 2015 in absolute terms.

Fleet Plans
A capital markets day next month will make clearer the carrier’s fleet plans and any interest that London-based IAG has in taking extra planes including used Boeing Co. 777-300ERs and Airbus Group SE A380 superjumbos, he said in an interview after his speech. Willie Walsh, the group’s CEO and Cruz’s boss, said in February that he was looking at the possibility.
Cruz said there is also interest in longer-range single-aisle models, Boeing’s 777X upgrade and the Airbus A330, which is performing well at the Iberia unit.
The executive said June 23’s Brexit vote has “muddied the waters a bit” for U.K. airlines aiming to participate further in consolidation because it’s not clear what future rules will allow. While the EU permits mergers among carriers within the bloc, there’s a 49 percent ownership cap for outside operators.
Commenting on the rescue of Britain’s Monarch Airlines Ltd. via a 165 million-pound ($202 million) injection from Greybull Capital LLP, Cruz said he was happy the carrier had survived but that the situation presented “an opportunity for some further rationalization of the market and it hasn’t happened.”
The CEO praised moves toward German consolidation in the face of increasing competition from Ryanair Holdings Plc, where Air Berlin Plc plans to operate as many as 40 jets for Deutsche Lufthansa AG and is also exploring a merger of its tourism operations with the local airline division of holiday giant TUI AG.
“They’re trying,” he said. “They have a huge threat, which is the big bad wolf from Ireland coming in and saying ‘we’re going to take 20 percent market share, get ready.’ For Lufthansa that’s a big threat. The sort of things they’re doing, while a bit controversial, appear to be going in the right direction.”