Q6 Full Business Plan - Heathrow Airport

5. Aeronautical charges
5.1.3. Revenues
Heathrow has two important revenue streams that
offset costs:
Other regulated charges (ORCs)
ORCs allow for separate recovery of a significant
proportion (around 20%) of the operational cost base
and an annuity towards some capital costs. The value of
ORCs will increase substantially for Q6 primarily due to
the inclusion of Q5 capital expenditure (previously
recovered via airport charges) in the ORC annuities and
the impact of Q6 capital projects. This results in a 20%
increase in ORC revenue.
Commercial revenues
Our plan is to deliver real commercial revenue growth of
1.2% CAGR through Q6 to substantially mitigate
operational costs. Commercial revenue will continue to
grow through a range of initiatives and investments as
described in Section 4.3.1, while continuing to achieve
the combined goals of growing commercial revenue in
the single till and enhancing passenger experience.
5.2. Downstream market
impact
The impact of the business plan, particularly the
proposed level of Heathrow’s aeronautical charges, on
downstream markets for air travel into and out of
Heathrow will of course have some bearing on the
market dynamic.
As noted in section 5.1 above, it is well understood that
the Q6 price is a function of the agreed assumptions and
the building blocks. The regulated price should therefore
be based on the efficient cost of services and the
infrastructure invested in, at risk, by Heathrow’s
shareholders, and not determined according to the
sustainability of certain downstream business models, or
some hypothetical downstream market construct.
Forecast passenger growth in Q6 is one of the factors
that limits the amount of capital expenditure proposed
to be undertaken in Q6 - with some consequent impact
on prices particularly in Q7. But the fact remains that
past investment undertaken at Heathrow must be taken
into account in the Q6 building block model.
Competitiveness is determined by an airport’s overall
attractiveness to passengers and airlines, and as
described in this business plan, Heathrow’s propositions
for Q6 will further improve Heathrow’s infrastructure, our
operations and resilience, and the overall passenger
experience. Heathrow will continue to provide a
competitive service to airlines and passengers.
‘Affordability’ is another concept, which is not so well
established, that can only be effectively considered
relative to an individual airline’s business model.
Different airline passenger profiles, different airline cost
structures and inter-temporal considerations illustrate the
challenge Heathrow faces in seeking to balance a
number of competing interests and priorities – all
pointing to very different affordability boundaries for
each individual airline.
Page 44 Heathrow Q6 Full Business Plan - Public version | Chapter 5 © Heathrow Airport Limited 2013