12-Feb-2013 12:29 PM

Heathrow announces GBP3bn of investment in 2014-2019, price per pax to increase to GBP25

UK's London Heathrow announced (12-Feb-2013) GBP3 billion of investment in Heathrow Airport in addition to the GBP11 billion that has been invested since 2003. The announcement forms part of the airport’s business plan for ‘Q6’ – the regulatory period which covers 2014-2019 – and it represents one of the largest private-sector investments in UK infrastructure. The plans include the completion of terminal 2 and the early works on extending the building; the development of a new integrated baggage system; and the construction of new taxiways and stands which will allow Heathrow to accommodate more of the most modern aircraft. Heathrow noted that its Q6 plan includes a capital investment programme of GBP3 billion, a tariff increase of RPI +5.9% and an average maximum allowable charge per passenger of GBP24.56 over Q6. The CAA will now develop and consult on its own proposals for Q6 before coming to a final decision on airport charges in Jan-2014. Details include:

  • Importance of Heathrow: Heathrow said it is the "UK’s only hub airport", accounting for 78% of all long-haul service from the UK;
  • UK Civil Aviation Authority (CAA) process: Heathrow noted that every five years, the UK CAA "scrutinises" the airport’s capital expenditure plans, operating costs and commercial revenues to set the maximum amount the airport is permitted to charge airlines over the coming period. The publication of the airport’s business plan for 2014-2019 serves as an input to the CAA’s decision;
  • Previous investment: Since 2003, Heathrow has invested GBP11 billion in the airport. Investment includes the construction of terminal 5, a new terminal 2 due to open in 2014, new baggage tunnels, and the refurbishment of terminals 3 & 4;
  • Planned investment: Heathrow is announcing a further GBP3 billion of investment focussed on better customer service; increased airport resilience and reliability, and improved environmental performance. The plans include ten priority areas for Q6:
  1. New terminal 2: Heathrow will open the new terminal 2 in 2014 which will result in most passengers travelling through new facilities. The subsequent move of airlines into the new terminal allows the closure of terminal 1 in 2016. The end of Q6 will see the start of work on extending terminal 2;
  2. Smoother journeys: Heathrow will build more self-service check-in kiosks and introduce new self-service bag drops. It will enhance real time information and introduce free wi-fi;
  3. Consistent, courteous service: Heathrow will provide additional customer service training for staff, and introduce mobile staff with tablet computers to provide greater assistance to passengers;
  4. Improved efficiency: Heathrow will deliver GBP248 million of savings to minimise airline charges by improving operational efficiency; retiring old facilities such as terminal 1; and investing in new facilities, such as self-service bag drops, which reduce airlines’ costs;
  5. Better surface access: Heathrow will extend its innovative personal rapid transport ‘pods’ to link terminals 2 & 3 with their business car parks. The airport will fund part of the Crossrail project which will link Heathrow to the City of London, Canary Wharf and the East End quickly and efficiently;
  6. Valued airport products and services: Heathrow will continue to evolve its range of commercial products and services, including develop premium retail and additional lounges, all of which contribute to significantly offsetting airport charges;
  7. Higher punctuality: The airport will introduce new airport management technology and additional runway rapid exit taxiways to help improve punctuality and reliability at Heathrow. It has an aspirational target of 90% on time performance, up from 80% at present and around 63% in 2007;
  8. Quicker connections: The airport will reduce the waiting time for transfer security so that 99% of the time passengers wait less than ten minutes. A new integrated baggage system will improve baggage reliability which has already improved from 40 missed bags per thousand passengers in 2007 to 15 per thousand today;
  9. Quieter aircraft: Heathrow will invest in upgraded stands and taxiways that will help to make it the busiest hub for A380s in Europe. Following the introduction in 2011 of new incentives and penalties to encourage airlines to operate the quietest aircraft, the airport will continue to trial new operational procedures that can reduce noise for local communities and roll out improved noise insulation schemes for local properties;
  10. Reduced pollution: Heathrow will increase the provision of pre-conditioned air which allows aircraft to switch off their engines while on the ground. It will also introduce more airside electric vehicles, cutting local pollution and reducing operating costs for airlines.
  • Charges: Heathrow noted its "plans seek to strike the right balance between continuing to invest for passengers and keeping charges at a level that is affordable for airlines". It noted the lower level of capital investment than in Q4 and Q5 will help to keep charges at an affordable level for airlines;
  • RoI for investors: Heathrow noted its business plan needs to deliver a fair return to shareholders to encourage future investment in the UK. It added: "Over the Q5 regulatory period passenger numbers have fallen 10% below the level anticipated by the CAA, resulting in Heathrow receiving around GBP650 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";
  • Forecasts: The business plan has the following price per pax, capital expenditure and passenger forecasts:
    • Capital expenditure: GBP660 million in 2014/2015, GBP697 million in 2015/2016, GBP591 million in 2016/2017, GBP591 million in 2017/2018, GBP464 million in 2018/2019 for GBP3003 million for Q6;
    • Price per passengers: GBP21.96 in 2014/2015, GBP23.25 in 2015/2016, GBP24.50 in 2016/2017, GBP25.81 in 2017/2018, GBP27.30 in 2018/2019 for average of GBP24.56 for Q6;
    • Passenger numbers: 69.5 million in 2014/2015, 70.3 million in 2015/2016, 71.0 million in 2016/2017, 71.8 million in 2017/2018, 72.6 million in 2018/2019 for 355.2 million total for Q6. [more - original PR]

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