It has been a rollercoaster ride for Heathrow Airport in the last few weeks.
First, the UK’s biggest hub faced stinging criticism from Emirates president Sir Tim Clark, who slammed the infrastructure at Terminal 3 and likened it to a run-down Second World War Airport.
Many see Heathrow’s future status as linked to whether its long-delayed third runway project ever gets off the ground. However, a few days after Clark’s comments, Willie Walsh, the former chief executive of British Airways and head of IATA, wrote off the plans as dead and buried.
The criticism from two of the most well-respected figures in aviation came after months of speculation over the third runway amid a looming general election and fears Heathrow could lose its position as one of the world’s top airports to the likes of Dubai and Istanbul.
But is it really all doom and gloom down in West London?
After months of discussion, a £3.3bn deal that will see the private equity group Ardian and Saudi Arabia’s sovereign wealth fund take a 38 per cent slice of Heathrow was reached on Friday. Whatever you think about the Saudi takeover, it means one thing: its Middle Eastern investors still see Heathrow as a key trophy asset in their bid to become a global tourism superpower.
In an interview with City A.M. last Tuesday, Menzies chief executive Philipp Joeinig was far more upbeat than Sir Tim Clark on Heathrow’s infrastructure.
He argued Terminal Five and Two were performing very well with continued investment in recent years. Moreover, he added that the airport still has “the best connections to the City” of all major airports in the world.
The naysayers have a point about the runway plans. Yes, some of its infrastructure might need a bit of an upgrade, but take a look at the numbers, and Heathrow is well on the way to flying out of the turbulence of the post-Covid years.
The airport has just reported a record year of annual traffic after 81.5m passengers passed through in 2023. On top of European destinations, the total was driven by a significant jump in demand for both US and Asia/Pacific regions, which are proving increasingly lucrative for Heathrow.
It goes without saying that the best predictor of an airport’s profit is the number of passengers it carries, and this year is expected to be no different to last. Heathrow turned a quarterly profit for the first time since Covid in February, and it’s hard to see its financial performance going anywhere but upward, given current trends.
The results also saw it chip away at its £16bn debt pile, which has hampered growth in recent years, although there’s still a long way to go.
And the airport’s profitability could come back to hit it in the pocket. Over the weekend, it was reported Heathrow was locked in private discussions with Whitehall officials over a looming business rates bill. The process for calculating the company’s rates bill changed in 2023, and it’s now based on profitability. The bill for 2026 will be based on its 2024 returns, and it could be as high as £300m a year, up from £200m currently.
That this has happened after the arrival of Thomas Woldbye, the Dane who joined from Copenhagen Airport in October, is no coincidence. Woldbye comes across as a calmer, more measured leader than former chief John Holland-Kaye, who attracted criticism for his handling of a bitter row with airlines over the level of Heathrow’s landing charges.
He will need to keep his cool as he discusses the most significant decision of his tenure: whether to pursue a third runway.
The Dane has initiated a significant review of the airport’s strategy, which includes an inquiry into the much-scrutinised expansion plans. Still, the project can’t be left in limbo for much longer.
Reports have suggested Heathrow is considering backing out entirely to pursue modest means of growing capacity, like using runway space more efficiently. It denies this is the case.
Shelving the third runway would be seen negatively by Walsh and others in aviation, but in some ways, it could be a blessing in disguise.
The project is a nightmare in infrastructure terms. It requires tunnelling under the M25, the demolition of hundreds of homes and isn’t even close to passing Labour’s carbon emissions test.
More importantly, though, it would cost an absolute fortune – around £19bn at today’s prices and adjusted for inflation. Remember Heathrow’s debt pile? It’s £16bn as a reminder.
Put that all together, Woldbye’s approach of pursuing capacity through less costly means could be a stroke of genius.
Couple that with growing transatlantic routes, booming demand in the East and new investment from abroad and Heathrow’s financial struggles may be set to ease.