Heathrow Airport has warned that rising employment costs and the government’s controversial business rates overhaul will wipe out the additional revenues generated from a record number of passengers passing through the west London hub.
In an update to bondholders, the UK’s largest airport revealed its profit had plummeted by 38 per cent in the nine months to October, blaming a higher-than-expected rise in costs, primarily driven by government policy.
A 1.8 per cent jump in revenues was outstripped by higher operating costs “linked to employment and business rates”, which Heathrow said had left its bottom line “under pressure”.
Adjusted profit before tax fell from £350m to £217m year on year, after its cost base climbed by five per cent to £1.2bn. This was despite total passenger revenue ticking up by 0.9 per cent, driven by record traffic numbers.
Some 77.3m passengers travelled through the hub in the 11 months to November. The group said it predicts that number to reach 84m by the end of the year, and to climb up to 85m in 2026.
“Heathrow’s role is simple: deliver for passengers, customers and for all of the UK. This year, we worked with airlines to make Heathrow Europe’s most punctual hub—because getting away on time matters most,” said Thomas Woldbye, the airport’s chief executive.
“We’ve invested over £1bn to improve resilience and passenger experience. Our focus on value for money helped us to welcome more passengers this year than ever before.”
Heathrow’s third runway to get lift-off
Last month, the government announced it would take forward Heathrow Airport Limited’s £49bn proposal to build a third runway, ahead of the rival bid from hotel tycoon Surinder Arora.
The group’s ambitious proposal contains plans to build a new terminal incorporated into its existing network and reroute the M25 motorway in order to accommodate a 3,500m runway.
The government will launch a public consultation in January, which will run alongside a shake-up of regulation being carried out by the Civil Aviation Authority.
Woldbye added: “Looking ahead, we’re focused on making Heathrow even better as we grow. We’ll double annual investment in upgrading facilities to £2bn over each of the next five years.
“We welcome the government’s decision to unlock long-term growth with a third runway. With the right policy framework, we’re ready to invest billions more in the UK supply chain and expand the nation’s gateway to growth.”
Heathrow was particularly severely affected by the government’s recent overhaul of business rates, which has sparked a significant backlash from the hospitality and transport industries. The levy, which is the commercial equivalent to council tax, was re-evaluated by the Treasury’s Valuation Office Agency, with the results confirmed at last month’s budget.
Heathrow was hit by a new “supermultiplier” charge, which means its property tax bill is poised to shoot up by some £145m.