Heathrow hopes 54.4 million passengers, or 67% of 2019 levels, will now use the airport this year,
Heathrow is now forecasting that 54.4 million passengers, or 67% of 2019 levels, will now use the airport this year, up from the 52.8 million it predicted in April. Heathrow expects its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to rise 257% from 2021 to £1.37bn. Revenue is forecast to double to £2.6bn. In general, staffing and energy costs are about 45% of an airport’s operating costs, and Heathrow has said higher energy prices will drive up its operating costs by almost half to £1.2bn this year. In January it forecast its underlying earnings would be £1.04 billion. But the airport is aware of many factors that may reduce air passenger demand this year, including the cost of jet fuel, the cost of living crisis, the UK inflation rate (currently over 9%), the war in Ukraine and Covid perhaps returning. Airlines continue to have staffing problems, and now BA staff are intending to strike. Heathrow’s finances remain very fragile.
.
Tweet
Heathrow said 20.1mn passengers had travelled through the airport in the first five months of this year
Heathrow airport raises passenger forecast as travel demand surges
Spectre of inflation hangs over recovery of airports, says head of ACI Europe
By Sarah Provan (Financial Times)
22.6.2022
London’s Heathrow airport has upgraded its passenger forecast for the year as summer demand surged more than expected, but warned of further risks to its recovery.
The UK’s biggest airport forecast that 54.4mn passengers, or 67 per cent of 2019 levels, would go through its terminals this year, up from the 52.8mn it predicted in April.
However, the airport warned that “significant downside risks remain”, as the cost of living crisis hits travellers’ finances and desire to go abroad. Meanwhile Covid-19 had the potential to return, while the war in Ukraine would also affect travel plans, the airport said in an investor report published on Thursday.
The latest figure allows for a resurgence in visitors from the US, Heathrow said. Since the airport’s previous passenger estimate, US travellers, which account historically for about 20% of Heathrow’s total, no longer face taking a Covid test on their return, a ruling that was announced on June 10.
Heathrow pointed to a “steady traffic increase” for this year, saying 20.1mn passengers had travelled through the airport in the first five months. That surpassed the 2.9mn of 2021 when travel restrictions were in place for much of the year. May’s figures were the highest since the start of the pandemic.
Outbound leisure at weekends, school and public holidays has driven demand as a lack of Covid-induced restrictions allow people to travel more freely. Inbound leisure and business travel remains weak since many other countries maintain Covid rules.
Latin America, which is outperforming 2019, North America and Europe in particular helped push up numbers compared with last year.
The London airport expected its adjusted earnings before interest, tax, depreciation and amortisation to rise 257% from 2021 to £1.37bn. Revenue is forecast to double to £2.6bn.
“However, the degree of uncertainty is still significant,” Heathrow said.
Inflation has begun to bite. Staffing and energy costs amount on average to 45% of an airport’s operating costs, Airports Council International figures show. The UK on Wednesday reported 9.1% inflation in May, a 40-year high.
Higher energy prices will drive up its operating costs by almost half to £1.2bn, Heathrow said on Thursday.
“There is no question but that the inflationary spiral we are now in is only making things worse,” said Olivier Jankovec, director-general of ACI Europe, when he opened its annual congress in Rome on Thursday. “Airports will simply not be able to pay back their debt and invest at the same time.”
European airports have cumulatively racked up more than €20bn of losses over the past two years and they “had no other option than to pile on debt”, Jankovec said. Total airport debt and liabilities have increased to €60bn compared with before the pandemic struck in March 2020.
“Restoring earnings to pre-pandemic levels will be challenging — and combined with debt servicing, there is no escaping the fact that airports are facing an investment crunch,” he said.
European airports need about €360bn in capital expenditure by 2040 but inflation has begun to affect their investment decisions, Jankovec added.
Heathrow’s chief executive warned this month that it would take up to 18 months for the aviation industry to return to pre-pandemic levels.
Airlines have cut flight schedules to cope with staff shortages as the summer demand has picked up. British Airways, which culled nearly 10,000 jobs during the pandemic, cut 10% of its schedules between March and October.
https://www.ft.com/content/a2074fb4-db8b-48bc-96f0-796704e76e43
.
See earlier:
Heathrow traffic struggles at 50% of pre-pandemic levels as fuel costs and the outbreak of the Ukraine war add to its problems
Low levels of overseas business travel and tourists coming to Britain have kept Heathrow’s passenger numbers at just over half of pre-pandemic volumes. Only 2.9 million people went through Heathrow in February, compared to 5.4 million in February 2019 – the month before the World Health Organisation declared the Covid-19 outbreak to be a pandemic. This was despite the US lifting a 20-month international travel ban on non-US residents and citizens flying to the country, which lead to a surge in travel between the UK and the US. But traveller numbers on Middle Eastern and EU routes rose by over 600%, while the cargo tonnage rose to within 7% of its pre-pandemic levels. Flight bookings continue to be significantly reduced by the continuing strict testing and quarantine rules in multiple countries. Business travel is significantly lower, as companies have cut back expenditure on flights and largely turned to videoconferencing meetings and hybrid working practices. The cost of jet fuel has risen sharply, due to the war in Ukraine. There is also concern about new Covid variants, and some American travellers worry about the behaviour of Russia in Ukraine.
Click here to view full story…
Heathrow’s financial problems deepen, especially if it has 15% less passengers in 2022 than forecast
Heathrow has been allowed, by its regulator the CAA, to increase its passenger charge from £19.36 to £30.19 this year until the summer. After that the CAA will probably rule on charges for the next 5 years. Heathrow wanted a larger increase, to £43 per passenger, and based some of its profit forecasts on that – and is peeved with the CAA for limiting its charges. Heathrow has net debts of £15.4 billion of net debt. It says that if its number of passengers in 2022 is more than 15% below its forecast of 45.5 million, it will have financial problems – though “no covenant breaches are forecast in 2022” but that is possible. Its forecast aeronautical revenue for 2022 has been revised down to £2.19 billion, and its underlying earnings down to £1.04 billion. If Heathrow has to breach its covenant terms with its lenders, it becomes a less attractive (aka lucrative) investment, and its credit rating eg. by Standard & Poor’s and Fitch. The airlines using Heathrow are, predictably, deeply opposed to yet higher Heathrow charges.
Click here to view full story…
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%.
Click here to view full story…
.
.