Heathrow recovery fights-back after worst year in its history
Recovery at London Heathrow Airport (LHR) has officially commenced, after a number of losses in both a fall in passenger numbers and traffic figures during the challenging year of 2021.
During 2021, passenger numbers fell to 19.4 million, the lowest figures since 1972 at London Heathrow Airport (LHR). The airport was the only European hub to see a reduction in traffic last year (2021), due to tighter travel restrictions than EU countries. Cargo, mainly carried on passenger planes, was 12 per cent down on pre-pandemic levels.
Furthermore, cost reduction helped to stem losses for the year, as Heathrow worked tirelessly to achieve £870 million of cost savings over the last two years, however cumulative losses during the pandemic have risen to £3.8 billion due to lower passengers and high fixed costs.
The airport’s balance sheet remain strong in the face of headwinds and gearing is reducing towards pre-pandemic levels helped by cost savings. Liquidity of £4 billion is sufficient to support recovery, but Heathrow 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 at Heathrow are currently 23 per cent behind forecast figures, however a strong summer is predicted for outbound tourism. Despite lower than expected passenger numbers in January and February (2022), the airport are expecting a surge of ‘Brits’ heading for summer sun and are working with their airline partners to ramp up operations to ensure they have a great experience at Heathrow, including reopening Terminal 4 by July 2022. The airport expects to meet its 2022 target of 45.5 million passengers.
The removal of 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 per cent of Heathrow’s markets retain some form of travel restriction or testing requirements, and government responses to Omicron show how uncertain broader travel demand remains. The airport do not 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.
Heathrow was rated by passengers as one of the world’s top 10 airports in 2021 in the Skytrax survey. Future plans 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 two per cent, 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.
Heathrow’s plans 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. The airport’s supply chain will now be on London Living Wage by the beginning of April 2022, and that other employers at the airport are following suit.
While Heathrow did have to pause 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. Plans for expansion will be reviewed over the course of the next year (2022-2023).
Heathrow CEO John Holland-Kaye commented: “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 two per cent despite significantly fewer passengers. I am anxious that the Civil Aviation Authority (CAA) will undercook the investment needed to avoid the return of ‘Heathrow hassle’ with longer queues and delays.”