UK's Heathrow losing £3m a day despite passenger growth taking off

London airport does not expect air travel to recover completely until 2026

Britain’s Heathrow said on Tuesday it remains a loss-making airport despite its first full quarter of passenger growth since 2019, before the start of the Covid-19 crisis.

The London airport said it has lost £3.4 billion ($4.68bn) since the start of the pandemic and is still losing £3m a day.

However, it is easing into recovery mode after passenger numbers in the third quarter recovered to 28 per cent and cargo to 90 per cent of pre-pandemic levels.

The airport does not expect air traffic to recover completely until at least 2026, even as the travel industry gathered momentum in the third quarter amid easing restrictions around the globe.

“We are on the cusp of a recovery that will unleash pent-up demand, create new quality jobs and see Britain’s trade roar back to life – but it risks a hard landing unless secured for the long-haul,” said Heathrow’s chief executive John Holland-Kaye.

A continued focus on the global vaccination programme and simpler testing rules will help to secure the airport’s future, he said.

Heathrow welcomed 10.2 million passengers in the nine months ended September 30, compared with 19 million in the same period in 2020. Revenue fell 27 per cent to £695 million while the adjusted loss widened by 36 per cent to £1.07bn

The airport has been operating two runways since early summer to meet the higher levels of demand, and terminals two, three and five are fully operational.

The airport said the £3.4bn in total losses since the pandemic started highlight “the long road ahead”, particularly as airports have “very high fixed costs and despite over 30 per cent reduction in operation costs”.

Heathrow, which last year lost its crown as Europe's busiest airport to Paris, has tried to claw back the losses made during the pandemic by raising its charges to airlines.

Last week, Heathrow was given the go-ahead by the Civil Aviation Authority to increase passenger charges by up to 76 per cent, with the the cap on its average charge per passenger raised to between £24.50 and £34.40 from the current level of £19.60.

This was lower than the range Heathrow had hoped for of £32 to £43.

The change is expected to come in effect from summer 2022.

Airlines opposed the scale of the increase as the airport and carriers battle to recoup pandemic losses.

Heathrow said on Tuesday that the CAA’s decision did not go far enough to ensure "financeability”.

"We have transformed Heathrow through private investment so that it is now rated by passengers as one of the top 10 airports worldwide, and airlines are able to achieve premium margins at Heathrow," the airport said.

Mr Holland-Kaye said Heathrow needs “a fair financial settlement from the CAA to sustain service and resilience after 15 years of negative real returns for investors”.

The airport said passenger traffic is still at about 45 per cent of 2019 levels, he said.

"It has definitely been a tough 18 months but we are starting to see the recovery coming through,” he said. "Now, all we need to see is stability in the travel rules, so people are confident of what we need to do and the airlines can build it into their systems.”

“Because there are fewer people … flying prices will be higher than the last five years. Our airline customers are not regulated and can charge what they choose to and those who have been flying are taking advantage of the increased demand on November 8, when the EU reopens.

“We provide fantastic value for money here and we have airlines that would like to operate from Heathrow but we need to fund improvements so we can give a world-class service in future.”

Mr Holland-Kaye said the airport is still losing £3 million a day so they “are not back to full health”.

“We have a long way to go still,” he said.

However, the airport said it has “the financial strength” needed to pull through the current slump in demand, with £4.1bn of cash.

The airport chief said the airport was now hiring new staff to meet a rise in demand.

He also called for a “progressively increasing global mandate for Sustainable Aviation Fuels (SAF) so that we can protect the benefits of aviation in a world without carbon”.

The British government's plan to enforce a mandate for at least 10 per cent SAF use by 2030 and £300m kickstart funding for production in the UK "provides leadership by example to other world leaders ahead of the Cop26 summit in Glasgow", Heathrow said.

"We now need government to set higher mandate levels for 2050 and provide a price stability mechanism, such as contracts for difference, to scale up supply as fast as possible."

Updated: October 26th 2021, 9:37 AM
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