Colin Matthews bothered Heathrow might be eclipsed by Dubai and Istanbul
Colin Matthews, head of Heathrow, believes the number of hub airports in Europe will in due course reduce from its current 5 down to 3. This will happen as long-haul air traffic moves to hubs in the Middle East, which are better geographically located than the UK. Airports in Dubai and Istanbul have huge projects to increase capacity, as they are in the right locations. These emerging hub airports will “over time” divert traffic from Europe. Colin Matthew says this will intensify competition between Heathrow, Amsterdam Schiphol, Frankfurt, Paris Charles de Gaulle and Madrid. For some reason, instead of logically therefore not needing larger airports here, he implies that it means the UK has to compete fiercely to remain a huge European hub. He does say “The question at some stage will be not so much shall we have two [hubs] but how on earth are we going to be sure we have one at all? There are 27 member states in the EU, most of them do not have a hub. “It is not a birthright that we have this connectivity.”
Europeans threaten Heathrow hub
Heathrow will face a battle for survival against Europe’s four other hub airports as countries such as Turkey and Dubai build up their aviation capacity, according to its chief executive.
17 Feb 2013
Colin Matthews, head of Heathrow, warned that airports in Dubai and Istanbul have huge projects to increase capacity while Britain procrastinates over where to build extra runways.
These emerging hub airports will “over time” divert traffic from Europe, intensifying competition between Heathrow, Amsterdam Schiphol, Frankfurt, Paris Charles de Gaulle and Madrid, he said.
The aviation veteran believes the number of hub airports in Europe will eventually slim down from five to three as more long-haul traffic passes through emerging hubs in geographically advantageous regions such as the Middle East.
Britain, in the grip of a major debate over airport capacity, should not to let its competitive advantage in aviation “slip away” through “disinterest”, he said in an interview with The Sunday Telegraph, on the eve of the group’s full-year results.
“Dubai and Istanbul, if you read their intentions to build a hub, are putting in big hub capacity. That will over time shift the flows of international traffic away from Europe and the competitive pressure between Heathrow and other European hubs will increase,” said Mr Matthews.
“The question at some stage will be not so much shall we have two [hubs] but how on earth are we going to be sure we have one at all? There are 27 member states in the EU, most of them do not have a hub. “It is not a birthright that we have this connectivity.”
Heathrow’s principal rival will be Amsterdam, the airport boss said. And the UK must not allow its aviation industry to go the same way as shipping, which withered in the face of competition from Holland.
“There was a time when shipping in the UK had a similar position and that went to Holland. It would be a pity if aviation went the same way and it could because Schiphol would like to do that,” he said
He also said, in an interview with the Sunday Telegraph
Sunday Interview: Heathrow boss Colin Matthews
Heathrow has justified its price increases by arguing that its shareholders, who are still led by the Spanish conglomerate Ferrovial, have invested money upfront to fund improvements to the airport.
Since 2003, £11bn has been ploughed into Europe’s busiest airport, on projects including Terminal 5 and a new Terminal 2, which will open next year. The group is proposing to invest a further £3bn between 2014 and 2019.
Shareholders reap the rewards of those investments retrospectively through higher revenues, Matthews argues. And so far, those shareholders have “scarcely” made a return on the billions they have ploughed into improving facilities at Europe’s busiest airport.
About 8m fewer passengers than forecast by the Civil Aviation Authority have passed through Heathrow’s doors over the past five years, which has resulted in lost revenue of £650m. “We haven’t yet started making a return to shareholders anything like in proportion to their investment,” says Matthews.
He acknowledges why the airlines have balked at another 6pc increase above inflation after already shouldering a jump of 7.5pc above the retail prices index (RPI) over the past five years – a formula that has pushed percentage rises into the double digits.
But he stands firm on the point that Heathrow can’t be diverted from its long-term course of repaying investors, just because airlines have hit some economic turbulence.
“I understand that airlines put huge pressure on every single line item of their costs, and an increase of double digits [in charges] is a big amount, but that’s what is required to invest in Heathrow. We simply have to earn the return in order to pay back, over a long period of time, investment that has been made,” he says.
The poor returns could explain why Ferrovial, which led a £10.3bn takeover of BAA in 2006, has been systematically selling down its stake in the group, which now presides over a dramatically reduced empire of four airports after being forced by the Competition Commission to sell off Gatwick, Edinburgh and, most recently, Stansted.
In October, Ferrovial struck a deal with the China Investment Corporation, which allowed the Spanish group to reduce its holding in Heathrow to 33.65pc. The move followed less than three months after Qatar’s sovereign wealth fund took a 20pc stake in the business.
From the outside, it would appear as though Ferrovial is taxiing towards the take-off runway. “You’re going to have to ask them,” says Matthews. “I’ve had absolutely no indication of that – quite the contrary.
“The other way I’d put it . . . is I think it’s pretty encouraging that well-known, big sources of equity, be it in China, be it in the Middle East, the Gulf, from around the world, are interested in investing in Heathrow.”
The influx of sovereign wealth is a vote of confidence for Heathrow at a time when its long-term fate is wrapped up in the outcome of the Government-appointed Davies Commission on aviation.
Matthews is conscious of not wanting to sound too “bombastic” when promoting Heathrow’s cause to the commission, led by Sir Howard Davies, the former Financial Services Authority chief.
While his adversaries such as Boris Johnson, the Mayor of London, have been loudly banging the drum about building an alternative hub airport elsewhere in the South East, Heathrow is following what can only be described as a “gently, gently” approach.
The first stage in Matthews’ chess game is to promote awareness of why it is important for Britain to have a hub airport, rather than a network of point-to-point airports, or even a dual hub, such as “Heathwick”, linking Heathrow with a rival via high-speed train.
Other groups, including the Institute of Directors and the Conservative Free Enterprise Group of MPs, have published reports arguing for Heathrow to be expanded into a four-runway “super hub”.
But, so far, Matthews has been coy about the full extent of his ambition for Heathrow, preferring, for now, to back the hub argument. He insists the group has not yet commissioned detailed studies into building a third, fourth or even fifth runway.
“Some of the options people talk about [for a new hub airport] will turn out not to be practical or realistic so they will fall away and I imagine it will come down to a small number of options and we are willing to see what comes out of that,” he says.
The Davies Commission, which reports in 2015, has been dismissed by a number of senior aviation figures, including Willie Walsh, the head of British Airways’ parent company.
Matthews believes it represents Britain’s “best shot” at finally resolving the that has been raging for decades – as long as the outcome receives cross-party support. But he insists his willingness to let the commissioners do their job shouldn’t be confused with a “relaxed” attitude to how the UK’s competitive edge in aviation is ebbing away.