Heathrow to reveal GBP2.5 billion of savings for third runway proposal

The cost of delivering a new third runway at London’s Heathrow has been a bone of contention since the GBP17.6 billion price tag was first revealed. Willie Walsh, CEO of IAG, parent of the airport’s largest operator British Airways, has described the bill as “completely unjustified”. IAG has this week criticised a lack of transparency in the airport’s proposals and urged the government to make the airport provide a detailed breakdown of third runway costs to ensure airline customers aren’t “ripped off”.


Summary:

  • Heathrow Airport has identified options that could enable delivery of an expanded hub airport for Britain for GBP 2.5 billion less than the plans originally submitted to the Airports Commission in 2015. 
  • New proposals include building additional capacity at both Terminals 2 and 5 rather than a dedicated terminal or satellite building between today’s northern runway and the new northwest runway. 
  • The airport will launch a 10-week public planning consultation which will run from 17-Jan-2018 to 28-Mar-2018.

Now, Heathrow has identified options that could enable delivery of an expanded hub airport for Britain for GBP 2.5 billion less than the plans originally submitted to the Airports Commission in 2015. It says the revised GBP14 billion option would be delivered “without compromising” on Heathrow’s local commitments or passenger experience.

The proposals – which will be released in detail as part of Heathrow’s public planning consultation in January – have been developed in close cooperation with the airlines and would ensure that Heathrow expanded with airport charges staying close to today’s levels, an issue that had concerned many of the airlines serving the airport.

The options that would facilitate the identified GBP2.5 billion cost reductions centre around repositioning new buildings over existing public transport and baggage infrastructure. This includes building additional capacity at both Terminals 2 and 5 rather than a dedicated terminal or satellite building between today’s northern runway and the new northwest runway. Alongside this technological advancements which reduce the amount of terminal space required to process passengers without compromising experience and more efficient phasing of capacity construction – incrementally increasing terminal capacity in blocks to better match growing demand will add savings.

“We are increasingly confident we can meet the affordability challenge,” says Heathrow’s executive director expansion, Emma Gilthorpe. The airport will launch a 10-week public planning consultation which will run from 17-Jan-2018 to 28-Mar-2018. The consultation will give the public an opportunity to see and feedback on Heathrow’s expansion proposals. The consultation will be formed of two parts – the first on infrastructure design options for an expanded Heathrow and our approach to managing and reducing environmental and community impacts, while the second will focus on the future design principles for airspace around Heathrow.

IAG remains among the most outspoken airlines on the costs of the project. In a submission to the government’s consultation on its airports national policy statement, IAG says that the airport’s project costs “frequently increase substantially from their original budget without any justification”. It warns: “Heathrow is already the most expensive hub airport worldwide and risks becoming a European white elephant if costs spin further out of control.”

Mr Walsh has previously stated he had a “huge objection” to the idea that you can build anything at any price in the name of the national economy and expect others to pick up the bill for it. “We didn’t ask for it so why should we pay for inefficient expansion,” he noted. “Terminal 5 [at Heathrow Airport] is fantastic, but boy was it expensive”.

Both Mr Walsh and its counterpart at Emirates Airline, president, Sir Tim Clark have said the days of airports just building expensive, inefficient infrastructure and passing the cost on to airlines and its customers are over. “We’re not going to tolerate it any more, we have been absolutely clear in relation to that,” said Mr Walsh, while Sir Tim added: “If you can’t extract value from a project then you shouldn’t be in the business. The idea to charge airlines and its customers for growing infrastructure is fundamentally flawed.”

Delivering expansion affordably is a key priority for Heathrow and next year’s consultation will include how this can be achieved by phasing the construction of new terminal infrastructure at the airport. By incrementally increasing infrastructure to align more closely with passenger growth, Heathrow is increasingly confident that expansion can be delivered, while keeping airport charges close to current levels – ultimately resulting in more affordable fares for passengers. “Expanding Heathrow is pivotal to Britain’s future prosperity and it’s a chance to make the airport a better neighbour for our local communities,” says Ms Gilthorpe.

CHART – Traffic levels are up 3.1% at London Heathrow in 2017 (first eleven months), the highest annual growth since 2013 and will see the 75 million passenger milestone past for the second successive yearSource: CAPA – Centre for Aviation and Heathrow Airport

While discussions continue on the growth of the capacity constrained airport, it continues to expand with Nov-2017 the 13th consecutive record-breaking month for the airport during which it welcomed 5.9 million passengers, up +3.5% on Nov-2016. The traffic in the first full month of the winter schedules was boosted by double-digit trade growth with key emerging markets.

Latin America was the fastest growing market as new BA flights to Santiago in Chile and increased load factors on Aeromexico flights pushed up growth +10%. Asia was close behind, growing +8% following the start of a daily morning Boeing 787 Dreamliner service by Japan Airlines and additional flights by Jet Airways to Mumbai and China Southern to Guangzhou.