Are things improving at Heathrow?In the next year, we may see a new era begin: a new owner, a new CEO and an end to Covid’s slump. The London airport now believes that 2024 will see record passenger numbers.
Aviation has a history of proving forecasters wrong. Heathrow’s shareholders and bosses would have surely looked forward to the arrival of the ghost Christmas 10 years ago. The interim report Airports Commission of the government appointed Airports Commission had just arrived, declaring London’s need for a new runway. Heathrow was all but confirmed as a winner if only for political expediency.
What the ghost pointed out to Heathrow in 2023 would be a source of horror. How could Harmondsworth, a village that was supposed to have been built on the site of the new runway, still stand there without a single bulldozer?
In theory, the plans are still in place, supported by government approval and judicial decisions, but many believe they have been effectively killed. Ferrovial, a Spanish infrastructure company that controlled Heathrow in a more or less centralized manner since 2006, may have sold its stake last month because of this. The company would have made money from both the construction and the expansion of the airport.
Ferrovial’s departure may not have immediate repercussions. Sources believe that given the premium paid by the Saudi sovereign fund and French private equity Ardian for Ferrovial’s 25% stake in the company, some sort of redevelopment may be on the cards.
According to Heathrow’s regulatory model the best way to earn returns for investors is by building more airport facilities. The Civil Aviation Authority (CAA), based on Heathrow’s RAB, sets the charges for airlines and suppliers. After a five-year public dispute with airlines and Heathrow, the level of these charges was just set. It is lower than Heathrow had claimed to be able to bear, but not too low given the Saudi interest, or the fact that the airport expects passengers will return after a year’s worth of grim forecasts.
The £3bn will be spent in the short-to-medium term. This includes a new luggage system for Terminal 2 and replacement security scanners for all terminals before summer. T2 is the newest terminal but its luggage still moves via Terminal 1’s machinery, despite it being the most recent. Heathrow will be able to demolish Terminal 1 and renovate the central area of airport campus with the new system.
Heathrow charges for passengers and utilities are already exorbitant according to some suppliers. They fear that the new investors will want to take it even further. Costs are passed on to captive businesses via the RAB.
Thomas Woldbye has been understandably reserved as Heathrow’s chief executive. His only notable appearance in public so far was to dance on the dancefloor during a Virgin party hosted in New York, to celebrate the first transatlantic flight that used 100% sustainable fuels.
Woldbye, however, has ordered a review of the masterplan for the airport which was designed around the third runway. This could push the new runway even further into future.
If the numbers are good, the new owners may not care about public opinion. The Saudi wealth fund, for example, is now an investor alongside China, Singapore, and Qatar. A Qatari Heathrow Board member complained once that locals had “excessive” freedom to protest in opposition to the disruption of the third runway. Other supporters fear that the new ownership will make it harder to gain wider political support for Heathrow. This is especially true if other shareholders such as pension funds exercise their rights to sell at the Ferrovial price, and a Saudi takeover occurs.
Heathrow’s optimists are hoping that airlines will buy into a plan for long-term upgrades rather than expansion. Woldbye’s task will be difficult, as most airlines still complain about the cost of operating at Heathrow.