Heathrow announces £3bn of new private-sector investment in UK infrastructure

Heathrow today announced £3 billion of investment in Heathrow airport in addition to the £11bn that has been invested since 2003.

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.

The plans include the completion of Terminal 2 and the early works on extending the building; the development of a new integrated baggage system; and the construction of new taxiways and stands which will allow Heathrow to accommodate more of the most modern aircraft.

Heathrow is the UK’s only hub airport, accounting for 78% of all long-haul flights from the UK. Every five years the 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.

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.

Operational performance has improved and passengers say they notice the difference. The proportion of passengers rating their journey as ‘very good’ or ‘excellent’ has increased from 48% in 2007 to 72% today. The airport has moved from the bottom to the top quartile of EU airports for passenger satisfaction, and in 2012 Terminal 5 was voted the world’s best airport terminal.

Today, Heathrow is announcing a further £3 billion of investment focussed on better customer service; increased airport resilience and reliability, and improved environmental performance. The plans include ten priority areas for Q6:

1. 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 Terminal 2.

2. Smoother journeys. Heathrow will build more self-service check-in kiosks and introduce new self-service bag drops which will give passengers greater choice and reduce airline operating costs. We will also enhance real time information and introduce free wi-fi.

3. Consistent, courteous service. Heathrow will provide additional customer service training for staff, and introduce mobile staff with tablet computers to provide greater assistance to passengers.

4. Improved efficiency. We will deliver £248 million of savings to minimise airline charges by improving operational efficiency; retiring old facilities such as Terminal 1; and investing in new facilities, such as self-service bag drops, which reduce airlines’ costs.

5. Better surface access. Heathrow will extend its innovative personal rapid transport ‘pods’ to link Terminals 2 & 3 with their business car parks. The airport will fund part of the Crossrail project which will link Heathrow to the City of London, Canary Wharf and the East End quickly and efficiently.

6. Valued airport products and services. We will continue to evolve our range of commercial products and services to meet the demand from our diverse mix of passengers, including develop premium retail and additional lounges, all of which contribute to significantly offsetting airport charges.

7. 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 2007.

8. Quicker connections. We will reduce the waiting time for transfer security so that 99% of the time passengers wait less than ten minutes – the shortest security queuing standard of any major hub airport in Europe. A new integrated baggage system will improve baggage reliability which has already improved from 40 missed bags per thousand passengers in 2007 to 15 per thousand today.

9. 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.

10. Reduced pollution. Heathrow will increase the provision of pre-conditioned air which allows aircraft to switch off their engines while on the ground. We will also introduce more airside electric vehicles, cutting local pollution and reducing operating costs for airlines.

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.”

Our 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.

Our 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.

We believe Heathrow’s plans represent good value for passengers, airlines and the UK as a whole. Our investment will deliver a better journey for passengers, more efficient and reliable infrastructure for airlines, and additional jobs, trade and economic activity for the UK.