In the run up to the opening of the new fifth terminal at London Heathrow in 2008, carriers and their alliances are now in tough discussions with BAA over location, service standards and fees.
The decision by British Airways to co-locate its entire Heathrow operation into Terminal 5 in one phase, rather than two as originally planned, is causing the alliances and BAA to renegotiate how and when other carriers will be repositioned around the world's busiest international hub. Most of BA's oneworld partners, too, will need to find a home outside of Terminal 5. "Strategically, the consequence of the release of all BA's capacity in Terminal 1 in 2008 and not 2011/12 had to be the right thing for BAA to promote," says Eryl Smith, business strategy director, BAA Heathrow.
The knock-on effect means that BAA is now asking the Star Alliance to co-locate at Terminal 1 rather than the alliance's original plan to build a mini-terminal in-between Terminals 1 and 3 to support a short-haul operation. That would have brought several Star carriers together under one roof but others would remain in Terminal 1 and 3. For BAA, it would be much cheaper simply to move Star into Terminal 1.
With BA moving its entire 25-30 million passenger operation in one go, BAA felt there was no justification for the new mini-terminal costing £500 million ($885 million) to £1 billion when Terminal 1 would have plenty of spare capacity.
Star complains that its carriers will be moving into a terminal that is inferior to Terminal 5, and which will put its members at a competitive disadvantage. Star understands that it will probably take until 2011 to bring Terminal 1 up to the same standard and for all Star carriers to move under one roof. However, Hock Lye Lee, Star's vice-president products & services, argues that in the meantime there should be some incentives for it to make the move.
Bmi, which has 14% of the slots at Heathrow out of Star's total of 27%, goes further. "We are not prepared to pay the full whack at Heathrow for facilities that are inferior to our competitor," says its chairman Sir Michael Bishop. "We should have a significant discount." He says that bmi will not shy away from legal action if the long-running talks do not reach a satisfactory conclusion.
BAA is adamant it cannot contemplate any rebates. Last year, the UKCAA announced a regulatory settlement that allows BAA to raise its charges six points above inflation for five years from 2003. "We are very clear that this is required to fund the level of capital investment that the industry expects us to deliver at Heathrow," says Smith.
"Our objective is to work with airlines to deliver competitive equivalence," says Smith. This is the term BAA uses to define the standard of facilities carriers want within the Central Terminal Area (CTA) of Terminals 1, 2 and 3 at Heathrow after 2008. Star has four objectives, says Hock: co-location of all carriers; an integrated baggage handling system; a minimum connecting time of 45 minutes - it is currently 60-90 minutes in the CTA today; and comparable facilities with Terminal 5.
BAA's Smith says it is making good progress on talks with Star about the Terminal 1 move. There will need to be significant refurbishment and modifications to the terminal, but it will not be possible to do too much pre-2008 because it will cost too much, he adds. The talks centre on obtaining a collective agreement from carriers on a timescale around 2010-12 to complete the co-location and upgrading work. "We are now asking airlines where they want to draw the balance between accepting operational degradation and for having competitive equivalence," says Smith. "Part of the proposition to Star is that we can deliver a Terminal 1 solution at a lower cost - this has to be better for Star and the community as a whole."
The alliance location picture for Heathrow post-2008, which BAA says is agreed in principal with carriers, sees Star at Terminal 1, oneworld apart from BA at Terminal 3 and SkyTeam at Terminal 4. Virgin Atlantic Airways wants to remain in Terminal 3. Over the next 12 months BAA will discuss the location aspirations of all "non-aligned carriers" says Smith. "By April 2005 a transition plan will be set out, including how far and how fast things go before 2008 and after 2008."
Although Star is frustrated with the length of time it has taken to find a resolution to this issue, Smith notes that the opening of Terminal 5 is still four years away. "We've got to remember that two years before Terminal 4 opened nobody had committed to move, so we are in better shape today than when the airport became a four terminal solution."
MARK PILLING LONDON
Source: Airline Business
