Heathrow could be compelled to allow other companies to design and build its third runway and new terminal, following a proposal from the UK aviation regulator aimed at reducing construction costs through competitive bidding.
CAA Review Proposes Competition
The Civil Aviation Authority (CAA) has released a long-awaited review suggesting changes to the regulatory framework governing Heathrow's operations and cost management. Among the key proposals is requiring the airport operator to solicit bids from external businesses to design, build, and operate parts of the delayed expansion project at Europe's busiest airport. The CAA stated that this approach "would allow for direct competition between Heathrow and an alternative developer … [that] could encourage competition and efficiency."
Radical Suggestion: Third-Party Terminals
The most groundbreaking suggestion from the CAA, which would require special government approval, involves allowing another developer to tender for building and operating its own terminals at Heathrow. This model mirrors the arrangement at New York's JFK airport, where multiple operators manage different terminals.
Background on Heathrow Expansion
Last November, ministers endorsed Heathrow's plan to have the third runway operational by 2035, rejecting a rival proposal from the Arora Group. However, the airport operator is still seeking formal planning permission to begin construction by 2029. Earlier this month, it emerged that Heathrow's new chair, Philip Jansen, had initiated talks with airlines and Arora Group's chair, Surinder Arora, to move the expansion forward amid disputes over the project's cost impact on carriers, retailers, and passengers.
Cost Concerns and Airline Opposition
British Airways dominates Heathrow, holding over 50% of slots. Its owner, International Airlines Group, led by CEO Luis Gallego, has insisted that the cost of the third runway and associated works must be capped at £30 billion. Heathrow is already considered Europe's most expensive airport, and in March, the CAA rejected its plans to significantly raise landing fees to fund upgrades.
Arora has promoted his own £25 billion expansion scheme and is part of the Heathrow Reimagined coalition, which also includes British Airways and Virgin. This group campaigns to drastically reduce operating costs at the airport. Arora commented, "Two years ago competition at Heathrow wasn't on the cards and now is very much alive and kicking because the case for change is so strong. We welcome this consultation from the CAA."
Regulator's Caution and Heathrow's Response
The CAA acknowledged potential difficulties in implementing a model with rival bidders. "This model could encourage competition and efficiency," the regulator stated. "Nonetheless, there would also be some complications in implementing such a model. It would be important to ensure that an approach involving the build, operation, ownership of assets and direct competition with Heathrow worked in a way to further the interests of consumers across the whole airport."
Heathrow warned that the proposals could "undermine efforts" to expand the airport and drive growth. A Heathrow spokesperson said, "Economic growth is key to tackling the cost of living crisis. We have a clear plan to invest billions of pounds of private capital to upgrade and expand the UK's hub airport – creating jobs and growth across the country. We support reform that boosts efficiency, cuts red tape and keeps investment flowing, but not proposals which will undermine our efforts to improve the airport for consumers or delay the economic growth the country needs. We look forward to working with government and the regulator to turn these proposals into positive outcomes."
Heathrow is owned by a consortium of investors led by French company Ardian, including the sovereign wealth funds of Qatar, Singapore, and Saudi Arabia.
