Infrastructure contracting: privatising gains and socialising losses - Heathrow edition

I have blogged about how private owners and operators of infrastructure assets while aggressively maximising the amount of profits they take out are loath to step in to cover losses. Instead they prefer to let it fall on the tax payers or customers. This market failure has been a feature of infrastructure ownership in UK and elsewhere.

The latest example is that of Heathrow airport which has suffered from the Covid 19 pandemic. FT writes about its response to a loss for the year which has topped £1.4 bn. 

There was a £5 charge for cars dropping off passengers. There was the £8.90 “pandemic tax” to cover fees for baggage handling, electricity and other services. Then there was the attempt to bump up the airport’s regulated assets base, or RAB — a mechanism that normally incorporates investment in the returns the airport can earn over an extended period of time — by a whopping £2.6bn to claw back losses. Regulator the Civil Aviation Authority rightly called that “disproportionate” in April, allowing £300m to be added to the RAB... The next battle is over the costs of operating the airport given lower passenger numbers, and who will bear the risks in this recovery. And again, it looks like the preferred answer is customers... The airport had suggested that fees, which are ultimately paid by travellers, be increased by 90 per cent over the next five years. In the event, the regulator has proposed charges rise by 15 to 60 per cent, which provoked a furious response from airlines and will now go to consultation.

Contrast this response of the owners of Heathrow with that during good times,

Heathrow’s consortium of wealthy owners, which include Spain’s Ferrovial and the Qatar Investment Authority, have taken £4bn in dividends out of the airport since 2012 — including £100m in April 2020. However, they didn’t put their hand in their pockets last year, despite the airport’s stretched finances. Now they seem remarkably determined to stress test the idea that travellers will continue to head through the doors come what may at what is already one of the world’s most expensive airports.