Heathrow considering smaller ways to increase flights, rather than a 3rd runway
Heathrow is exploring options for expansion that would prioritise smaller improvements before considering if it could go for a 3rd runway. New Chief Executive, Thomas Woldbye, who joined in October, has apparently launched an internal review into the options to increase its capacity. No decisions have yet been made. One option under consideration is a new plan to initially focus on easier and cheaper improvements within the airport boundary, as there are serious concerns about the feasibility of a 3rd runway. The world has moved on since Heathrow got consent for a new runway, with travel demand altered since Covid, and a different political and regulatory environment, as well as far higher construction and financing costs than before. The cost estimate was £24 billion in 2019. Heathrow is also in the middle of a change in ownership, as Ferrovial agreed to sell their 25% stake to a consortium lead by Saudi Arabia’s sovereign wealth fund (PIF). One major problem for a 3rd runway is having to put a section of the M25 into a tunnel (very costly) and demolishing local homes. The Climate Change Committee says there should be no airport expansion, unless the sector has a way to genuinely cut CO2 emissions.
.
Tweet
Heathrow airport explores options for smaller expansion
Focus on cheaper improvements rather than third runway being considered as new chief launches review
By Philip Georgiadis in London (FT)
DECEMBER 8th 2023
Heathrow airport is exploring options for a new expansion plan that would prioritise smaller improvements before construction of a controversial third runway is considered.
Chief executive Thomas Woldbye, who joined in October, has launched an internal review into the airport’s options to increase its capacity, according to people familiar with the matter.
The review by the UK’s largest airport is still in its early stages and no decisions have yet been made, the people added.
One option under consideration is a new plan to initially focus on easier and cheaper improvements within the airport boundary before potentially moving to a third runway. The review comes against a backdrop of concern over the feasibility of major expansion.
The airport is assessing the shape of post-Covid demand for travel as well as the political and regulatory environment, the people said, noting that construction and financing costs had risen sharply.
Heathrow is also on the cusp of a change in ownership, after long-term owners Ferrovial agreed a deal last week to sell its 25 per cent stake to Saudi Arabia’s sovereign wealth fund and French private equity group Ardian.
It has been attempting to expand its operations for the past two decades and appeared to be on the verge of applying for planning permission to build a third runway before the pandemic hit.
The government had backed proposals to increase London’s airport capacity through a new runway at Heathrow. In 2019 the airport set out plans for a £14bn project, including demolishing local houses and moving the M25 motorway into a tunnel to build a new airstrip to the north-west of the current airfield.
Under the 2019 plan, the third runway would have been built first followed by extensions and upgrades to terminals and the airfield. It aimed to eventually raise passenger numbers to 142mn a year compared with 81mn in 2019.
But some of the airport’s shareholders are increasing sceptical that a third runway is possible in the near future.
Heathrow runs under an annual cap of 480,000 flights per year, and its two runways operate at close to maximum capacity.
It could grow its passenger numbers while staying within the cap by improving current infrastructure to enable it to handle larger and fuller planes. The current two runways also have capacity to run more flights during off-peak periods.
However, a material rise in flights would require persuading the government to lift the flight cap.
Sir Howard Davies, head of the government’s review into London airport capacity before the pandemic, told the Financial Times earlier this year he thought Heathrow was the right airport to expand.
“If you wanted a significant increase in London airport capacity then Heathrow is [still] highly likely to be the best place to do it,” he adds.
Other airports have meanwhile begun work on smaller projects, acting on a previous government policy that directed Heathrow’s rivals to “make best use” of their existing airfields.
Gatwick has launched a scheme to bring its standby runway into regular use, while Stansted, Luton and City airports have all laid out plans to grow passenger numbers without building new runways.
Environmental campaigners have said that airport expansion is incompatible with the aviation sector’s commitment to decarbonise by 2050, while the government’s Climate Change Committee recommended that no airport expansions should proceed until a UK-wide framework was in place to assess and control the sector’s emissions.
Heathrow declined to comment.
https://www.ft.com/content/139664f8-1ee8-4d1e-b8b4-68b8ddcec4e6
.
See earlier:
Ferrovial to sell its 25% stake in Heathrow for $3 billion to Ardian (15%) and Saudi Arabia’s PIF (10%)
Infrastructure giant Ferrovial has reached an agreement with two different buyers to sell its entire 25% stake in Britain’s busiest airport, Heathrow, for £2.37 billion ($3.01 billion) the company said in a statement on Tuesday. Ferrovial said the buyers for the stake in FGP Topco – the parent company of Heathrow Airport Holdings Ltd – were private equity fund Ardian and Saudi Arabia’s Public Investment Fund (PIF). Ardian would acquire a 15% stake and PIF a 10% stake. The transaction is subject to regulatory conditions and must comply with the right of first offer and full tag-along rights, which may be exercised by the other FGP Topco shareholders, Ferrovial added. Ferrovial expects to complete the sale by mid-2024. Ferrovial also has a 50% stake in three other British hubs: Aberdeen, Glasgow and Southampton. It also has a 49% stake in the new Terminal One at New York City’s JFK airport.
Click here to view full story…
Could Heathrow ever afford to build a 3rd runway?
The possibility of more airport expansion, and growth in the number of flights and passengers, is a serious problem of increasing carbon emissions. Heathrow is to have a new chief executive, Thomas Woldbye, from Copenhagen airport in October – replacing John Holland-Kaye. He has to decide whether to try to get a 3rd runway. As well as the increased CO2, Heathrow has the problem of paying for its expansion. Could it ever afford it? Since it got final approval for expansion in February 2020 (Appeal Court), costing about £14 billion, the costs of construction and financing will have hugely increased. Heathrow has vast debts, which it has increased to raise the regulatory value of their assets. Heathrow now has £16bn of borrowings and posted a loss this year largely due to the rising cost of its inflation-linked loans. The team working on the expansion was disbanded a few years ago, and there are no current estimates of the cost. The forecast for the demand for flying, oblivious of the climate destabilisation now underway, is for over 50% more passengers by 2050. The airport’s shareholders and board are yet to decide whether to push forward with a 3rd runway, and over what timeframe.
Click here to view full story…
Likelihood of Heathrow’s 3rd runway even lower, after CAA charges decision
The CAA has refused Heathrow’s demand for a big increase in the fees it charges airlines. It had wanted up to £43 per passenger. But its regulator, the CAA, allowed it £27.49 on average. The present charge is higher, which means that fees will have to come down over the next few years. Heathrow can appeal to the Competition and Markets Authority (CMA). It looks increasingly unlikely that Heathrow will be able to build a 3rd runway. There was little mention of it in the CAA’s recent analysis. The 242 page ruling on charges just says: “We [the CAA] have said we will deal with these matters separately and in a way consistent with our statutory duties if Heathrow were to reintroduce proposals for capacity expansion.” Heathrow will say only that the plan is under review. There is some evidence in the CAA’s prices ruling that the runway will be a long way off, if ever. The CAA said the charges they are allowing would give Heathrow sufficient financial headroom to pay investors £1.5 billion over the next few years, a rate of return in line with other utility investments. But Heathrow has a level of gearing – the ratio of borrowing to equity base — of over 82%, making even that rate of return unlikely. And the negative impact of the CO2 from an expanded Heathrow make the project ever more improbable.
Click here to view full story…
.
.