Death knell for Heathrow’s 3rd runway as Ferrovial cuts off funding – and CAA blocks high passenger charge rise
Heathrow has been told by its regulator, the CAA, that it cannot raise its passenger charges for airlines by as much as it wanted. At present the airport can charge up to £22 per passenger, and it wanted to increase that to £43 in January 2022. But the CAA has said it will be capped at £24.50 to £34.40 for five years – with an interim figure of £30 set for 2022. The CAA also reconfirmed its decision earlier this year on Heathrow’s regulated asset base, (RAB) which determines how much money the airport can recover from its customers through charges. This will now rise by £300m, rather than the £2.3bn requested by Heathrow, which wanted to recoup its pandemic losses from consumers, but the CAA had refused. A final decision will be made in January. So Heathrow’s finances are not looking healthy, and now their main shareholder, Ferrovial, has said it will not invest further in the airport, and is not happy about getting low returns. The withdrawal of support by Ferrovial could be the final straw for 3rd runway plans. Heathrow passenger numbers now are about 45% of the 2019 level, and the airport does not expect numbers to return to those levels until 2026.
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Death knell for Heathrow’s third runway as Spanish investor cuts off funding
Ferrovial, the Spanish investor, is blaming the decision on the CAA for blocking plans to increase Heathrow’s landing charges
By Oliver Gill, CHIEF BUSINESS CORRESPONDENT (Telegraph)
30 October 2021
Plans for a third runway at Heathrow have been dealt a killer blow on the eve of the Cop26 climate change summit after its top shareholder signalled it will cut the airport off from further investment.
Executives from Ferrovial, the Spanish infrastructure investor, attacked the UK’s aviation regulator for blocking plans to increase Heathrow’s landing charges by 90% from next year.
Ignacio Castejon, Ferrovial’s airport head, claimed that the Civil Aviation Authority’s decision meant that shareholders would have to shoulder “low returns”.
He said: “It makes me feel very sceptical about the appetite to contribute further capital into Heathrow.”
Progress on a third runway at Heathrow was disrupted by a sharp fall in air travel during the pandemic that forced the airport to concentrate on its survival. The airport’s boss, John Holland-Kaye, has insisted that the £14bn scheme will eventually go ahead however.
The withdrawal of support by Heathrow’s biggest shareholder, though, is likely to be fatal.
One senior aviation consultant, who has worked with Heathrow for two decades, said: “This is an affirmation that this is not going to happen. Where is the capital going to come from? It has to be paid for.”
Opponents of the expansion took heart from the news, with world leaders set to meet at the Cop26 summit in Glasgow this weekend.
Responsible for around 3% of the world’s global carbon emissions, the aviation sector is under pressure to reduce its footprint. Commercial aircraft powered by hydrogen or electric are years from entering service, meaning that finding ways to reduce air travel will feature prominently during discussions at the conference.
Ferrovial is backed by hedge fund billionaire Sir Christopher Hohn, one of the biggest donors to Extinction Rebellion. Its members joined Greta Thunberg on Friday in protests in London ahead of the climate change summit. Ms Thunberg told banks to “stop funding our destruction” by investing in fossil fuel projects.
Paul McGuinness, chair of the No 3rd Runway Coalition, said: “The only lifeline left is the prospect that the shareholders will do what they have never done, and inject some cash. And that their biggest shareholder has no appetite to do so may well be the death knell for Heathrow and it’s expansion.”
Though the CAA blocked Heathrow’s planned increases in landing charges, they have proposed allowing them to rise by up to 56%. This means a family of four travelling to Florida will be paying an extra £100 or more to fly from the airport, leaving airline bosses as angry as the airport counterparts. [ie. a £25 extra charge per person].
Willie Walsh, the former boss of British Airways and now head of airlines body Iata, said the CAA decision, subject to consultation, warned passengers risked being “ripped off”.
But Ernesto Lopez Mozo, Ferrovial’s finance chief, said: “To be blunt, we are quite disappointed with these initial proposals.
“We are losing as investors,” he said. “The situation has not been answered in the way we expected.”
Ferrovial is the biggest of Heathrow’s shareholders, owning a 25pc stake. Other backers include sovereign wealth and pension funds from China, Singapore, Qatar and Canada. The UK’s Universities Superannuation Scheme (USS) is the smaller investor with a 10pc shareholding.
Anthony Clake, a hedge fund manager at Marshall Wace, backed an alternative proposal to expand capacity at Heathrow.
Jock Lowe, a former Concorde pilot who led the bid, said: “We are not surprised Ferrovial is giving up. We always said that Heathrow Airport’s third runway proposal was doomed to fail because it was too expensive and environmentally damaging.”
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Heathrow air traffic may not recover until 2026, says boss
27.10.2021 (BBC)
The boss of Heathrow Airport has warned air traffic may not recover completely until at least 2026 despite signs of huge pent up demand for travel.
John Holland-Kaye told the BBC that Britain’s busiest airport was still making losses even though international travel rules were easing.
He also hit back at the aviation regulator for limiting a rise in what it charges airlines for using Heathrow.
Airlines at Heathrow make a good return and investors want the same, he said.
Mr Holland-Kaye said the airport was still only seeing passenger traffic at around 45% of 2019 levels. “It’s definitely been a tough 18 months but we are starting to see the recovery coming through,” he told the BBC’s Today programme.
“Now all we need to see is stability in the travel rules, so people are confident of what we need to do and the airlines can build it into their systems.”
The airport has faced criticism about long queues and its ability to cope with a growth in passengers. But he said: “We are hiring people right now to make sure that across the airport we can meet the demand that is starting to come through.
“We’re still at around 40% to 45% of the levels even on the busiest days of where we were back in 2019.”
Among the job vacancies Heathrow is trying to fill are security staff and engineers to help maintain the airport.
Any shortage of passport control staff, which has lead to headlines about long queues, is the responsibility of Border Force, which is part of the Home Office.
‘Fair return’
Mr Holland-Kaye said it was important the airport and its investors could raise money to help finance that return to growth.
At present, the airport can charge up to £22 per passenger for the cost of operating terminals, runways, baggage systems and security.
It wanted that to rise to as much as £43 in January, but the Civil Aviation Authority (CAA) now says it will be capped at £24.50 to £34.40 for five years.
Heathrow passenger charge to be curbed
Mr Holland-Kaye said: “The CAA’s initial proposals do not go far enough to ensure that investors can achieve a fair return, which is key to securing future private investment in passenger service and resilience for Britain’s hub airport.”
The London airport said passenger numbers in the third quarter recovered to 28% and cargo to 90% of pre-pandemic levels, although it has lost £3.4bn cumulatively since the start of the pandemic.
Heathrow, which last year lost its crown as Europe’s busiest hub to Paris, has suffered heavy losses during the pandemic and had been hoping it could claw back some money by raising its charges to airlines.
https://www.bbc.co.uk/news/business-59047792
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Heathrow passenger charge to be curbed
At present, the airport can charge up to £22 per passenger for the cost of operating terminals, runways, baggage systems and security.
It wanted that to rise to as much as £43 in January, but the Civil Aviation Authority now says it will be capped at £24.50 to £34.40 for five years.
An interim figure of £30 has already been set for 2022.
The move comes as the aviation industry is struggling to recover from the impact of the coronavirus pandemic.
Last year, Heathrow reported a £2bn annual loss after passenger numbers during the pandemic dropped to levels last seen in the 1970s.
CAA chief executive Richard Moriarty told the BBC the industry had gone through “a really difficult period”.
He said the CAA had tried to “keep the charges as low as possible, whilst recognising it’s really important for Heathrow to invest and maintain a high-quality airport”.
Nothing is more guaranteed to raise an airline executives’ hackles than the prospect of increased charges at Heathrow, the London hub that is a must-have destination for an international route network.
Airlines have always complained Heathrow charges are too high – even two decades ago, when they were cheaper than at comparable large airports – and the collapse in traffic following the pandemic has only made that feeling worse.
Carriers currently pay on average £22 per passenger. Heathrow asked for an increase of up to £43 per passenger over the next five years, saying Covid-19 had severely hit the number of passengers using the terminals without defraying the airport’s necessary multi-billion pound running and investment costs. The CAA has come down between the two, setting a range of roughly £25 to £35, with next year’s per passenger charge set at £30.
There was an understandably angry reaction from airlines, with Shai Weiss, the chief executive of Virgin Atlantic, complaining that the airport’s owners were abusing its “monopoly” position. They point out that the airport had built up substantial debt in the run-up to the crisis and its shareholders had taken billions of pounds in dividends.
Expect more lobbying of the CAA by the carriers and Heathrow before the final decision next year. Either side can still then appeal against the findings to the Competition and Markets Authority.
The CAA also reconfirmed its decision earlier this year on Heathrow’s regulated asset base, which determines how much money the airport can recover from its customers through charges.
This will now rise by £300m, rather than the £2.3bn requested by the company.
Mr Moriarty said Heathrow had in effect wanted to recoup its pandemic losses from consumers, but the CAA had refused.
The plans will be subject to consultation until mid-December, with a final decision being taken in January.
If the airlines that use Heathrow or the airport itself want to contest the plan, they can then take the matter to the competition regulator, the Competition and Markets Authority.
‘Blatant gouging’
A Heathrow spokesperson said: “Our aim is to reach a settlement that enables us to give passengers a great service while operating a safe, resilient and competitive hub airport for Britain.
“That Heathrow is ranked by passengers as one of the best airports in the world is testament to the power of private investment over the past decade, and to enable this to continue, we believe the settlement should safeguard a fair return for investors.
The spokesperson added that the settlement was not designed to “shield airlines from legitimate cost increases or the impacts of fewer people travelling”.
However, trade body Airlines UK has reacted angrily, with chief executive Tim Alderslade saying it would oppose the increase “in the strongest terms”.
“The CAA is our last line of defence against a monopoly-abusing hub airport,” he said.
“Monopolies will always try it on and that’s why we need a strong regulator to clamp down on what is blatant gouging. How on earth can it be in the interests of consumers to ramp up charges by as much as 50%?
“Passengers need to be front and centre here – it’s Heathrow’s shareholders and not our customers who should be asked to foot the bill.”
https://www.bbc.co.uk/news/business-58964793
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See earlier:
Heathrow losses now £2.9bn and consolidated net debt £15.2 bn
Heathrow has announced that its cumulative losses from the Covid-19 pandemic have hit £2.9 billion. In its results for the first half of 2021, Heathrow’s revenue dropped from £712 million in the first six months of 2020 to £348 million in the first half of 2021, which is 51.1% less than in the first half of 2020, and 76.2% less than the first half of 2019. Its pre-tax loss widened 18% to a little over £1 billion. It had 3.85m passengers, which is 75.1% less than the same period in 2020, and 90.1% less than the first half of 2019. Heathrow (it has a complex structure of numerous companies and levels) had consolidated net debt of £15.2 billion — not much less than the airport’s £16.9 billion regulated asset base (RAB), or the CAA’s proxy for its value. Heathrow had been allowed, by the CAA, to increase its RAB by £300 million, to £16.9 billion. Its chief executive John Holland-Kaye is using the half-year figures to warn about a covenant waiver on its various loans. The group of Heathrow companies has £4.8 billion of liquidity, (ie. ability to borrow) with average cost of debt just 1.64%.