Heathrow plans further £3bn investment

Heathrow airport has released its full business plan for Q6, the regulatory period between 2014-2019, with the continued investment of £3 billion being pledged, which could lead to higher charges for airlines operating from the hub. The £3 billion investment will go towards the completion of Terminal 2, construction of wider taxiways to aid the movement of wide-body aircraft such as the A380 around the airfield, and a new integrated baggage system. Heathrow has already invested £11 billion in improvements since 2003. Heathrow has outlined a set of priorities for this new injection of investment, which include:

• The opening of T2 in 2014 and the movement of airlines to the new terminal (see online news December 2012). This will also allow for the closure of T1 in 2016, leading to operational savings
• Building more self-service kiosks and bag drops and introducing free wifi
• Customer service training
• Better surface access, including rapid transfer pods to link Terminals 2 and 3 with their business car parks
• Funding towards the government’s Crossrail project
• New retail brands and lounge products
• New airport management technology and rapid exit taxiways as the airport aims to hit its target of 90 per cent on time performance, up from 80 per cent today
• Integrated baggage system connecting T3 and T5 via a tunnel

Colin Matthews, chief executive of Heathrow said of the continued investment: “Heathrow faces stiff competition from other European hubs and we must continue to improve the service we offer passengers and airlines.” Airlines have been briefed on the Q6 plans, and a proposed RPI+5.9 per cent total increase in aeronautical charges over this period has already brought a reaction from carriers. This increase will see the average price per passenger across all flights reach £27.30 in 2018/19, an increase that could be applied to ticket prices by airlines, to some extent at least. However, Matthews was keen to stress that “this particular element is a fraction of the tax one,” in reference to the government’s Air Passenger Duty. Heathrow blames a miscalculation of estimated passenger numbers over the previous Q5 period (2007/08-13/14) for the increase in charges. The Q5 estimate had Heathrow to reach 78 million passengers by this stage, around eight million over the actual figure. In the business plan the airport says: “Over the Q5 regulatory period passenger numbers have fallen ten per cent below the level anticipated by the CAA, resulting in Heathrow receiving around £650 million less than the allowed return from aeronautical charges. Heathrow cannot recover this cost now or in future. Correcting the passenger forecast for Q6 inevitably results in increased prices.” The new forecast sees a more modest rise in passenger numbers over the next five years, increasing from 69.5 million to 72.6 million by 2018/19. The Civil Aviation Authority (CAA) will scrutinise the airport’s capital expenditure plans outlined in the business plan and make a final decision in January 2014, for implementation by April 2014. The CAA regulates the maximum amount Heathrow can charge airlines over the coming period. Matthews confirmed that all of these proposals are geared towards improving the airport as a two runway hub, and that any decision by the Davies Commission regarding expansion would not effect this five-year period. It was also confirmed that there will be practically no investment in Terminal 3 over the Q6 period, as the airport focuses on its resiliency and efficiency. In response to the proposed increase in charges a spokesperson at British Airways says: “The charges must be reduced significantly over the coming years, especially when the airport is cutting investment by around 25 per cent from next year onwards. We hope the regulator will give a fair ruling in the months ahead, which doesn’t penalise customers and airlines.” Similarily, Virgin Atlantic responded: "Prices at Heathrow are triple the level they were ten years ago. [...] In the current economic climate other businesses, in private and public sectors and especially airlines, are making savings and delivering on less money. Airports should not be exempt from that and we call upon the CAA to use its regulatory powers to ensure there is a real terms reduction in charges applied to each passenger." For more information visit heathrowairport.com. Report by Scott Carey