Heathrow ready to spend £3bn

Heathrow airport is to receive £3 billion of investment on a major overhaul which will include the construction of new taxiways and stands allowing it to handle more modern aircraft. Heathrow is the UK’s only hub airport, accounting for 78 per cent of all long haul flights from the UK.

Like much UK infrastructure Heathrow historically suffered from out-dated facilities and decades of under-investment. Since 2003, Heathrow has invested £11 billion in the airport – one of the UK’s largest private sector investments. Investment includes the construction of Terminal 5, a new Terminal 2 due to open in 2014, new baggage tunnels, and the refurbishment of Terminals 3 & 4.

The £3 billion of investment will be focussed on better customer service; increased airport resilience and reliability, and improved environmental performance. Priority areas include

• New Terminal 2. Heathrow will open the new Terminal 2 in 2014 which will result in most passengers travelling through new facilities. The subsequent move of airlines into the new terminal allows the closure of Terminal 1 in 2016. The end of Q6 will see the start of work on extending Terminal2
• Higher punctuality. We will introduce new airport management technology and additional runway rapid exit taxiways to help improve punctuality and reliability at Heathrow. We have an aspirational target of 90% on time performance, up from 80% today and around 63% in 200
• Quieter aircraft. Heathrow will invest in upgraded stands and taxiways that will help to make it the busiest hub for A380s in Europe. These modern aircraft are popular with passengers, as well as quieter and more fuel-efficient than the aircraft they replace. Following the introduction in 2011 of new incentives and penalties to encourage airlines to operate the quietest aircraft, we will continue to trial new operational procedures that can reduce noise for local communities and roll out improved noise insulation schemes for local properties.

Colin Matthews, chief executive of Heathrow said: “Heathrow is the UK’s only hub airport and a strategically important national infrastructure asset. Heathrow faces stiff competition from other European hubs and we must continue to improve the service we offers passengers and airlines. We have invested billions of pounds in new facilities such as Terminal 5 in recent years and passengers say they have noticed the difference. Our plan for a further £3 billion of private-sector investment will further improve the airport for passengers. The plan represents good value for money for airlines and passengers and comes at no cost to taxpayers.”

The announcement forms part of the airport’s business plan for ‘Q6’ – the regulatory period which covers 2014-2019 – and it represents one of the largest private-sector investments in UK infrastructure.

Every five years the UK Civil Aviation Authority (CAA) scrutinises the airport’s capital expenditure plans, operating costs and commercial revenues to set the maximum amount the airport is permitted to charge airlines over the coming period. The publication of the airport’s business plan for 2014-2019 serves as an input to the CAA’s decision.

Heathrow said its plans seek to strike the right balance between continuing to invest for passengers and keeping charges at a level that is affordable for airlines. The lower level of capital investment than in Q4 and Q5 will help to keep charges at an affordable level for airlines. The level of charges at Heathrow is tightly linked to the historic level of capital investment in new facilities.

Heathrow’s business plan also needs to deliver a fair return to shareholders to encourage future investment in the UK. Over the Q5 regulatory period passenger numbers have fallen 10% below the level anticipated by the CAA, resulting in Heathrow receiving around £650 million less than the allowed return from aeronautical charges. Heathrow cannot recover this cost now or in future. Correcting the passenger forecast for Q6 inevitably results in increased prices.

The Q6 plan includes a capital investment programme of £3 billion, a tariff increase of RPI +5.9% and an average maximum allowable charge per passenger of £24.56 over Q6. The detailed figures in Heathrow’s full business plan are set out below.

The CAA will now develop and consult on its own proposals for Q6 before coming to a final decision on airport charges in January 2014.

Read More: Heathrow’s Full Business Plan