The boss of Heathrow has defended steep rises in landing charges that will push up air fares by saying returns to investors now have to come first, despite a leap in revenues at the airport on the back of record passenger numbers in 2012.
Spending on the airport facilities is to slow over the next five years while charges rise, but chief executive Colin Matthews said: “What we need to do now is to make a fair and market return to shareholders.”
The largest shareholder remains the consortium led by the Spanish Ferrovial group, which bought BAA for £10bn in 2006, although it has sold down its former majority holding to just over a third of shares. The sovereign wealth funds of Qatar, Singapore and China own a total of over 40%, with the rest held by Canadian pension fund CPDQ and private investment firm Alinda Capital Partners.
Matthews warned that investors, who he said had spent £11bn on Heathrow since 2003, would go elsewhere without returns. The airport paid a dividend of £240m last year, its first since the 2006 takeover.
The airport has set out plans to raise charges by 40% in real terms over the next five years – a proposal attacked by airlines which have demanded significant cuts after steep rises in recent years, including a 12.7% rise last April that contributed to an extra £130m in levies. Around £3bn is earmarked for investment in its infrastructure and services.
Matthews said that there was “a very good level of agreement” with airlines over the vision for an improved Heathrow, and insisted the higher charges – which will spell higher fares – were necessary. “The balancing item is how quickly we get there. The faster we invest, the faster the short-term increase in prices. We do have a good agreement over investment priorities – the balancing act is affordability with the rate of progress.
“Airlines put pressure quite rightly on every single line of their costs. We’ve made that upfront investment which is then paid down through landing charges over decades. We have to make a fair return to debt and equity to sustain the investment in Heathrow.”
The sale of Stansted, for a higher than expected £1.5bn, should complete within the next two weeks, he said, but would not impact on the equation. “Stansted is an asset that the shareholders owned – and the price was a good price. But that’s separate from Heathrow.”
The decision on charges lies with the regulator, the CAA, which will give an indication in April of where charges are likely to be set before its final ruling later this year.
Heathrow’s revenues rose 8% to £2.5bn while pre-tax losses were cut from £255.8m in 2011 to £32.8m. Interest payments on Heathrow’s debt wiped out operating profits of over £570m, meaning the airport paid £8m in tax, after a £64m tax credit received in 2011. Matthews said the tax figure categorically did not represent any kind of subsidy for Heathrow’s investors. “People pay tax when they make profit.”
Matthews said 2012 had been a good year for the airport: “We had record passenger scores for assessing the quality of their journey in Heathrow – partly down to the Olympics.”
He said record passenger numbers of 70 million were likely to rise again slightly in 2013, although the airport was at capacity in terms of flights numbers. Additional A380 planes – which have around 100 seats more than 747s – would be the biggest driver of any increase.
Matthews has recently been joined on the board of Heathrow by Akbar al-Baker, the outspoken chief executive of Qatar Airways, after the state’s sovereign wealth fund took a 20% stake in the airport. Matthews said that al-Baker had not yet attended a board meeting, but was just one voice of many who supported the demand for greater hub capacity in the UK.
Despite the capacity crunch, the Heathrow boss said he did not hold with calls made last week to bring forward the verdict of the Davies Commission to before the election. “My view is that whatever decision is taken has to stick. The last two decisions have been promptly undone. That does no good whatsoever to the country. If in order to win broad enough political support that takes until 2015, then I’d rather that than have a decision in 2013-14 which is undone at the next election, because that is just wasteful.”
Mr Matthews was speaking as Heathrow Airport Holdings said 2012 revenues rose 8% year-on-year, helped by a 10.5 % increase in the user fees it charges airlines.
Although big-ticket events such as the London Olympics and Paralympics boosted passenger numbers at Heathrow by 0.9% to 70m during the year, this was offset by a 3.2% decrease at Stansted to 17.5m passengers.
Heathrow’s net retail income per passenger was £5,82 in 2012, cf. £5.58 in 2011. Up 4.4%
Heathrow full year results: