Heathrow halves losses but warns of cost of living pressures

Airport company says it is still in the red because passenger revenue allowance was set too low

Passengers arrive at London's Heathrow Airport. The business posted a loss of £139 million in the first half of the year. Getty

London's Heathrow Airport said it made a loss in the first half of this year, partly because of the H7 ruling by the Civil Aviation Authority that kept the revenue it charges airlines per passenger “too low”.

As passenger numbers continued to recover from the Covid pandemic, Heathrow cut its losses in the first half to £139 million ($179.2 million) from £321 million in the same period last year, but said its balance sheet is strong, with “gearing well below pre-pandemic levels and £4 billon of liquidity, sufficient to cover all of our commitments for at least the next 24 months”.

Heathrow said 37.1 million passengers passed through in the first six months of 2023, which included some of the busiest days on record.

That's a 42 per cent rise on the same period in 2022, but is 4 per cent below the first half of 2019, before the pandemic.

Heathrow left its prediction for passenger numbers for 2023 unchanged at between 70 and 78 million, compared with 81 million in 2019.

“The summer getaway is off to a great start, thanks to planning and close collaboration with airlines and their ground handlers, said Heathrow chief executive John Holland-Kaye, who is due to leave in October and will be replaced by Thomas Woldbye, the current boss of Copenhagen Airport.

“I am immensely proud of what we have achieved as a team in the last nine years, transforming Heathrow into a world-class airport that Britain can be proud of," Mr Holland-Kaye added.

“Heathrow is now a leader in sustainability, with a diverse culture that reflects our local community and can attract the best talent from around the world.”

However, the airport said overall passenger numbers are consistently below pre-pandemic levels, and “the cost-of-living crisis is a material headwind for second-half demand”.

Price war?

Some experts predict a fall in demand within the UK travel industry as a whole in the second half of the year, as higher interest rates and inflation take their toll on household budgets, and this could result in cheaper airfares.

"We're going to see prices come off and we'll see more price wars emerge again, which we haven't seen for some time," Paul Charles, chief executive of the travel consultancy, The PC Agency, told The National.

"We'll see the emergence of the price war on certain routes, and Heathrow should be able to benefit from that, because demand should be created by these price wars.

"It's going to be an exciting time for consumers because they will see more realistic pricing. But it will be a challenging time for the industry as it adjusts from a period of very high pricing to something more realistic for consumers," he added.

Meanwhile, Heathrow Airport said it would be appealing against the H7 ruling, which had been lowered by the CAA when passenger numbers recovered after the pandemic. Airlines have complained that the charge-per-passenger rate is still too high.

The rate is an average maximum of £31.57 ($37.40), which is expected to fall by about 20 per cent to £25.43 ($30.19) per passenger in 2024.

It's been a tricky balancing act, Roger Appleyard at RBC Capital Markets told The National, but the CAA has, broadly speaking, got it right.

"Although the CAA has been on the harsh side, as you wouldn’t argue the shareholders of Heathrow have made decent returns in the past," he added.

Heathrow also said up to £3.7 billion would be spent on passenger service improvements, which will include the replacement of the Terminal 2 baggage system and streamlining security in all terminals.