Heathrow Spotlight as Recovery Begins
The Heathrow Observer
February 23, 2022.
Heathrow recovery begins After the Worst Year in its History
Passenger numbers fell to 19.4m, lowest since 1972 – Heathrow was the only European hub to see a reduction in traffic last year, due to tighter travel restrictions than EU countries. Cargo, mainly carried on passenger planes, was 12% down on pre-pandemic levels.
Cost reduction helped to stem losses for the year – We have worked hard to achieve £870m of cost savings over the last two years, however cumulative losses during the pandemic have risen to £3.8bn due to lower passengers and high fixed costs.
Balance sheet remains strong in face of headwinds – Gearing is reducing towards pre-pandemic levels helped by cost savings. Liquidity of £4bn is sufficient to support recovery, but we are keeping a close eye on cashflows to protect financial covenants and credit ratings. Ratings agencies have been clear that the CAA’s final H7 settlement will be a key determiner for maintaining Heathrow’s investment grade ratings. No dividends were paid in 2021 or forecast to be paid in 2022.
Passenger numbers currently 23% behind forecast, but a strong summer for outbound tourism predicted – Despite lower than expected passenger numbers in January and February, we are expecting a surge of Brits heading for summer sun and are working with our airline partners to ramp up operations to ensure they have a great experience at Heathrow, including reopening Terminal 4 by July. We expect to meet our 2022 target of 45.5m passengers.
Inbound tourism and business travel remain key challenges – Removing testing restrictions in the UK has boosted outbound tourism demand, but inbound tourism and business travel are suppressed due to testing in other countries. 63% of our markets retain some form of travel restriction or testing requirements, and government responses to Omicron show how uncertain broader travel demand remains. We don’t expect travel to return to pre-pandemic levels until all restrictions have been removed, passengers can travel with no checks and are confident they will not be re-imposed.
Maintaining passenger service levels key to recovery – Heathrow was rated by passengers as one of the world’s top 10 airports in 2021 in the Skytrax survey. Our plan for H7 seeks to maintain this level of service by delivering easy, quick and reliable journeys while keeping the increase in total ticket prices below 2%, despite significantly fewer passengers. We are anxious that the CAA will undercook the investment needed to avoid the return of “Heathrow hassle” with longer queues and delays.
Plans for net zero aviation by 2050 remain on-track – We are making good progress on decarbonising aviation, tackling noise, and providing skilled careers for local people, and have set more ambitious targets in our updated Heathrow 2.0 plan for sustainable growth. We are proud that all of our supply chain will now be on London Living Wage by the beginning of April, and that other employers at the airport are following suit.
Pandemic has strengthened the strategic case for expansion – While we have paused work to expand Heathrow during COVID-19, the crisis has shown the pent-up demand from airlines to fly from Heathrow, as well as how critical Heathrow is for UK’s trade routes and the risk to the economy of Britain relying on EU hubs which can close borders overnight. We will review our plans for expansion over the course of the next year.
Heathrow CEO John Holland-Kaye said:
“While 2021 was the worst year in Heathrow's history, I am very proud of the way that colleagues focussed on passengers, and we were able to maintain our position as one of the top 10 airports in the world for service.
"Demand is now starting to recover and we are working closely with airlines to scale-up our operations and reopen Terminal 4 for the summer travel peak. We're excited to welcome more passengers back to Heathrow to experience the joys of travel and get Britain's economy firing on all cylinders again.
"To deliver this, we have outlined an investment plan for the next five years which meets the needs of passengers, drives fast traffic recovery and incentivises investment in a critical national asset, while keeping the increase in ticket prices below 2% despite significantly fewer passengers. I am anxious that the CAA will undercook the investment needed to avoid the return of “Heathrow hassle” with longer queues and delays.”
Commentary by John Grant, OAG.
It’s been a very tough few years for aviation and much of the attention has been focussed on the airline industry where record losses have been reported and Government bailouts a regular occurrence. There was flexibility for some airlines who were able to redeploy aircraft to other parts of their networks or indeed start new routes in an attempt to stimulate demand. After all, aircraft are portable, airports generally are not.
Airports are a classic fixed asset, heavy on capital equipment and typically always investing in new projects. The latest results from London Heathrow are no surprise; fewer passengers than in 2020 when at least there were a few months of “normal” demand at the beginning of the year. Losses of £3.8 billion are therefore not surprising and the airport has certainly not endeared itself to airlines with some hefty increases in fees in the last few months. Pride has also been wounded by other airports in Europe recovering faster than Heathrow, and indeed based on current data for March 2022 the airport will rank in 11th place on the global list - however, if only international traffic is counted it moves to second position, but with nearly a million fewer seats than will be operated at Dubai; that’s some gap to close in the coming months.
For Heathrow brushing the 2021 performance under the carpet makes sense because things can only get better, and indeed they already are. The easing of all COVID-19 restrictions in the UK is the biggest sign that the industry is recovering, although Heathrow like every other airport remains at the mercy of overseas authorities easing their entry requirements even further.
The Summer 2022 IATA season commences on Sunday 27th March and typically airlines add more and more capacity so that by early June the peak operating programme is in place and airports are crammed with both business and leisure travellers. Unlike previous years there will be some uncertainty from airlines as they watch for any new variants of Covid-19 impacting travel but it looks like Heathrow will be getting back to something near normal levels, at least from a capacity perspective. Current planned capacity for Summer 2022 is 29.2 million versus 29.6 million in Summer 2019, a shortfall of less than 2% although we should expect that to shake down a bit. Compared to Summer 2020, capacity will have increased fourfold and against last Summer nearly tripled…great sound bites for the optimist.
Looking at the data by country market many of the major destinations have come back strongly, especially the longer haul markets such as the United States where pent-up demand has been waiting for nearly three years in some cases to travel. Even markets such as France and Italy that would normally be the domain of low-cost carriers from other airports are looking positive against the last few years.
Amongst the top airlines operating at Heathrow only two carriers are planning to operate less capacity than Summer 2019, Air Canada and Qatar Airways although in the case of Qatar expansion into London Gatwick with twice-daily services and changes in equipment type explain away most of that capacity change. Virgin Atlantic are the largest carrier in terms of growth in 2019, completely driven by the airline, despite being based at Gatwick, now having moved their entire operation to Heathrow; with an expanded operation and some new destinations added to Pakistan it will be interesting to see if the carrier ever returns to Gatwick, aside from a maintenance visit.
So, at a high level it would look like Summer 2022 could be a good season for Heathrow but of course there is an important factor to consider, demand. However hard the airlines try demand is likely to be softer than in previous years, especially if the cost of fuel begins to soften demand as airfares rise. And whilst every passenger pays the same airport charges for Heathrow what looks like being at least another seven or eight months without Chinese visitors spending hundreds of pounds in the retail outlets the bottom-line numbers for the airport will remain soft for some time, although perhaps not as soft as the forecast from the airport.
Whilst Heathrow may not expect a full recovery until 2025 or 2026 with a fair wind the full recovery could be achieved by 2024, but for some purposes stretching out the recovery a little longer both manages shareholder expectation and supports the recent increases in charges to airlines.
© John Grant / OAG
Graphics via OAG
Recruitment Drive Begins
Thousands of new recruits will have the chance to grow their careers at Heathrow airport as a new recruitment drive takes off ahead of this year’s summer. Vacancies are available across the vast network of companies that operate at the UK’s hub airport.
From the service and hospitality teams who make every journey memorable, to aviation and logistics roles vital to keeping the airport moving, there are plenty of opportunities for anyone looking to play their part in the recovery of the UK’s busiest airport.
There are a wide variety of opportunities for people to start or grow their career at Heathrow. These include apprenticeships and entry-level roles, as well as more technical positions in areas such as airfield operations, driving and engineering. Hundreds of vacancies are already advertised on the Heathrow Academy website – including positions in Border Force and Heathrow Security. Many more roles will be going live in the coming months.
Heathrow Chief People Officer Paula Stannett said: “A job at Heathrow is an opportunity to work at one of the most exciting and dynamic places in the country. We can’t wait to welcome more passengers back this summer. To get ready, we’re building our team of dedicated colleagues who love making a difference to our passengers every day.
“Together you can help us get people back to the things that matter most – visiting family and friends abroad, falling in love with travel again and connecting their business with global markets.”
While the airport community must ramp up now to meet expected summer demand, passenger numbers for 2022 are estimated to be just over half of 2019’s record-breaking 81 million passengers.
There are many opportunities for career development within the airport community, often beginning with pre-employment training. To be in post in time for the summer peak, interested candidates are advised to apply soon.
To find out more about current vacancies and the support we offer to those looking to gain employment across Heathrow visit: www.heathrowacademy.co.uk. Apply now to make the difference.
Kevan James
We Brits have a disturbing tendency to talk ourselves down. We have, in a multitude of different areas, belittled our achievements and not given our own backs a pat when deserved.
Yet there are so many areas, so many aspects to our lives, so many things we have done, where the United Kingdom and its people do indeed deserve praise. London's Heathrow Airport is one of them.
Everything - and everybody - is in need of a little criticism now and again. We are not perfect and don't claim to be. So it is fine to throw a brickbat now and again, provide of course that it is reasonable, rational and free of unnecessary terminology. Heathrow Airport is, again, not perfect and never has been. What is is however, is a fine example of British imagination, invention and ingenuity. We still have a sea-faring tradition across the UK and still move a huge amount of material through our seaports but it is Heathrow Airport that has kept the UK connected to the world, and brought the world to the UK.
The airport has been through many of the less desirable aspects to travel over the more than seven decades it has served both London and the country. Some of these are detailed in my book on Heathrow (out of print right now but when the COVID-19 response has eventually subsided, I will revisit and update the story), yet for all the trials and tribulations, it has endured. And millions have flown through it, for the most part, reasonably quickly and above all, safely. That is a tribute to all those who have worked at the airport, at all levels, throughout its history.
On a personal level, I grew up with Heathrow. Again as I point out in my book, I have flown near and far from it, on big aircraft and small. It is the airport I come home to.
London and the UK need Heathrow Airport. Yes, by all means, strive for cleaner, quieter engine technology, as both airport and airlines are doing. But we need to be connected to the world and the world needs to be connected to us.
Both the UK Government and others around the world must realise that COVID-19 is not permanent, in the sense that medical advances will either overcome it or reduce the effect of it (as has been the case with other afflictions).
Our governments - worldwide - must, as a matter of urgency, lift, ease or whatever term you wish to apply, the strangulation applied to our collective necks. And the UK government must support both London Heathrow and the UK's other airports across the country.
And if you really need an example of the vital role airports and air travel can play, think of all the medical supplies that arrived here since March 2020. That didn't happen by accident and a huge portion of it came by air. Quickly, safely, efficiently and much of it through London Heathrow.
© Kevan James 2022.
Images - Heathrow Airport Ltd.
