British Airways is by far the largest airline at Heathrow Airport, but have they reached their peak with the Covid-19 Pandemic forcing thousands of job losses and a slow return to growth? Will this allow smaller airlines to emerge and operate successfully at Heathrow, considered the hardest airport in the world to survive at?
London Heathrow International Airport (LHR) in West London has been the ‘jewel in the crown’ for airlines wishing to serve the London market since the 1980’s. With fast connections to Central London via public transport and multiple road connections to motorways serving the entirety of the UK and more than 200 destinations across more than 85 countries, Heathrow continues to hold the prestigious title of Europe’s busiest airport and one of the busiest in the world with 80.2m passengers using the Airport in 2019.
As the airport grew in popularity and size through faster and larger aircraft such as the Boeing 747 and Concorde, it converted into a ‘Slot-Controlled’ airport in which airlines must own an arrival and departure ‘Slot’ in order to gain permission to operate there. This has become a common occurrence in recent years throughout airports worldwide such as New-York (JFK) and Hong Kong (HKG). Heathrow, however, was operating at 99% capacity in peak-traffic before Covid-19 – meaning the airport had no slots available for new airlines.
For more than 20 years, this has created a huge competition problem for consumers as slot prices have skyrocketed when flying into and out of Heathrow. An example of this was Oman Air who bought a peak-morning slot from Air France/KLM in 2016 for a staggering $75m, the largest slot-acquisition to date at Heathrow. This supersedes the deal American Airlines made with SAS a year earlier for an equivalent slot-time by $15m, proving the huge desire of airlines to operate at Heathrow.
Ticket prices have also continued to increase over the last 10-15 years. As well as the slot-price dilemma, one of the many reasons for this are because it is likely you will fly with the Monopoly-Leader of the West London hub: British Airways (BA). Since the 1980’s, BA has grown and capitalised on Heathrow’s proximity to Central London and new infrastructure such as their Flagship ‘Terminal 5’, creating their ‘Primary Hub’ out of LHR, allowing passengers to transfer from one flight to another under BA’s umbrella of routes all within the convenience of Heathrow’s Terminals. By controlling over 50% of slots, and with other partner airlines under the International Airlines Group (IAG) and OneWorld Alliance, the airline effectively controls over 60% of the airport’s slots.
Despite this, the Covid-19 pandemic struck the aviation industry globally and affected both LHR and BA as borders were shut, collapsing travel demand. Heathrow Airport Ltd. (HAL) reported 95% fewer passengers between March-June 2020 compared with March-June 2019 and more than £100bn was lost in revenue for both HAL and BA as cancellations of flights piled up.
As a result, both HAL and BA were forced to axe thousands of staff: more than 12,000 at BA – some of which have worked at the carrier for over 50 years, creating a gap in experience as many of the high-skilled jobs within BA were lost. This has left only the youngest employees at BA with the lowest pay packages as the airline attempts to restart its operations whilst reducing pressure on their finances. Whilst there was a rise of cargo-only flights over the lockdown period for BA – using passenger aircraft as makeshift freighters or ‘Preighters’, it was not enough to offset the reduction in lost revenue.
In recent weeks as the pandemic has continued to slowly reduce in ferocity across the world, some passenger flights have resumed but BA have been hesitant to ramp up operations, only flying to destinations assured to secure much needed revenue. This has allowed some new faces to enter LHR: China Airlines of Taipei, Vistara of India and Czech Airlines of the Czech Republic. Also slated to fly into LHR include: WestJet of Canada, SpiceJet of India and Ukraine International of Ukraine. Other existing airlines – including a key rival of BA, Virgin Atlantic, have opened new passenger and cargo routes to cities including Brussels, Atlanta and the Pakistani
cities of Islamabad and Lahore.
Whilst it is unlikely these airlines will create any harmful impact for British Airways in the long-term, in the short and medium-term they will create new competition by giving more choice, forcing ticket prices to reduce and slightly eliminating the Monopoly-power BA have had for decades. This could also incentivise more Long-Haul travel for UK consumers as the lower prices coupled with lower risk of catching the virus should allow passengers to return to the skies, especially since SpiceJet, Vistara and WestJet are all Low-cost Long-Haul airlines – rivalling BA’s traditional Full-Service Network-Carrier (FSNC) pattern, meaning BA will have to respond by
potentially revising their pricing strategy to match the efficiency these airlines are able to achieve.
Regional airlines Aurigny Air and Eastern Airways have also filed slots into Heathrow flying from Guernsey and Teesside respectively to the London hub. This is great news for regional connectivity and boosting the UK economy as regional routes are currently operated solely by BA after the acquisition of BMI in 2012 and the demise of Flybe in March 2020. Without these new airlines entering Heathrow, only 9 UK cities were connected to the airport– half the routes flown to rival European hub: Amsterdam-Schiphol in The Netherlands.
Ultimately, the pandemic has devastated the whole aviation sector including the airlines serving Heathrow. However, it is enlightening to see some airlines emerge out of the trouble Covid-19 has presented and enter the most contested airport in the world. With recovery efforts slower for the larger carriers like BA, smaller and more cost-efficient airlines have a golden opportunity to seize market share from the British flag-carrier and change the way passengers perceive Heathrow as more than just “BA”.
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