Are the good times coming back for Heathrow? The next 12 months may define a fresh era: new ownership, a new chief executive and a line apparently drawn under the Covid-induced slump. Now, the London airport believes, 2024 will bring record passenger numbers.
Aviation does have a track record in proving the forecasters wrong. Exactly 10 years ago, Heathrow’s bosses and shareholders would surely have looked forward to a visit from the ghost of Christmas yet to come. The government-appointed Airports Commission’s interim report had just landed, declaring that London needed a new runway and – save a delay for political expediency – all but coming out for Heathrow.
But what the ghost’s bony finger pointed out in 2023 would have filled Heathrow with horror: how could the village of Harmondsworth still be standing where their new runway should have been – without a bulldozer in sight?
The plans still exist in theory, backed by government assent and judicial victories, but they date from a pre-Covid age, and many now believe them effectively dead. That may have been what prompted Ferrovial, the Spanish infrastructure firm that had more or less controlled Heathrow since 2006, to sell its holding last month. It would have reaped profits from the construction work as well as from the eventual expanded airport.
The ramifications of Ferrovial’s exit may not be immediately apparent. But, given the premium that the Saudi sovereign wealth fund and French private equity group Ardian paid for Ferrovial’s 25% stake, well-placed sources believe some kind of redevelopment is on the cards.
Under Heathrow’s regulatory model, the best way for investors to make returns is by building ever more facilities at the airport. Money is recouped through charges to airlines and suppliers, set by the Civil Aviation Authority (CAA) according to Heathrow’s regulated asset base (RAB). The level of those charges has just been set – lower than Heathrow claimed bearable, after a ritual five-yearly public row with airlines, but perhaps not too low, given the Saudi interest and the admission that passengers are now expected to flood back after a year of gloomy forecasts.
In the short to medium term, £3bn is earmarked for expenditure – including a new baggage system for Terminal 2, confirmed last week, and the replacement of security scanners across all terminals by summer. Despite it being the newest terminal, T2’s luggage is still moved via the machinery of long-closed Terminal 1. The enhanced system should not only be quicker and more resilient, but will also allow Heathrow to finally demolish T1 and revamp the central area of the airport campus.
Some suppliers, who already say Heathrow’s charges for utilities as well as passengers are exorbitant, fear the new investors may want to go further – perhaps a £10bn redevelopment of T3? – passing on costs to captive businesses through the RAB.
Thomas Woldbye, Heathrow’s new chief executive, has been understandably reticent. His only notable public appearance so far has been to throw shapes on the dancefloor at a Virgin-hosted party in New York to celebrate the first transatlantic flight using 100% sustainable fuels.
But Woldbye has commissioned a further review of the airport’s masterplan, which was built around the third runway. It is understood that this could shunt that new runway ever further into the future.
The new owners might be less concerned with public opinion if the numbers stack up; the Saudi wealth fund is now a co-investor alongside those of China, Singapore and Qatar, and the Qatari Heathrow board member once complained that locals enjoyed “excessive freedom” to protest against the disruption of a third runway. But other backers fear the new ownership may make it ever harder to win wider political support for Heathrow, particularly if, as some predict, other shareholders, such as pension funds, exercise their right to sell for the Ferrovial price and an effective Saudi takeover ensues.
Until then, Heathrow optimists hope a long-term plan to upgrade rather than expand will get airlines’ buy-in. But with most still railing against the money they pay to operate there, Woldbye will need to work hard to get them dancing to his tune.
