Q6 Full Business Plan - Heathrow Airport

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1. Introduction and context 1.3 Passenger and airline context Our business plan takes passenger interests as its principal objective. This objective is enshrined in the regulatory regime and is also consistent with Heathrow’s commercial interest, as we need to remain competitive with other European hubs both in terms of service offering and our price. This depends on the airport being valued by passengers and airlines that choose to fly to and from Heathrow. We understand through our research what drives a positive experience throughout the passenger journey at Heathrow and have captured a set of passenger principles to guide our thinking. These principles include the consistent delivery of basics such as security and cleanliness, enabling reliable and predictable journeys, showing that we care for the passenger, and providing value for money. Since June 2011, we have been consulting with our airlines to maximise the opportunity presented by the Q6 regulatory review to improve passenger experience. The Heathrow Airport community has followed a process of Constructive Engagement (CE) intended to inform the CAA’s thinking on the Q6 settlement. This process followed the direction set out within the CAA’s Mandate for CE, and concluded on 3 December 2012. The FBP does not form part of CE. Nevertheless, we have drawn extensively from the CE debate with our airline community in developing the plan as there is a substantial degree of agreement on many issues, such as the priorities for Q6 and many of the investments proposed. This plan is consistent with the output from CE. It is expected that the FBP will form the basis for ongoing discussions with our airline customers, in some areas. 1.4 Demand context The over-optimism in Quinquennium 4 (Q4) and Quinquennium 5 (Q5) passenger demand forecasts has been acknowledged by all parties – in Q5 we are already a cumulative 33 million passengers behind the level expected in the 2008 settlement and so will enter Q6 with passenger numbers 10% below the levels anticipated at this stage in Q5, as shown in Figure 1.1. As we enter Q6 it is important that passenger forecasts are reset to reflect current forecasts which show only modest growth, through larger aircraft and higher load factors, against a background of macro-economic uncertainty. In a constrained environment such as Heathrow, where annual air traffic movements are at 99% of capacity, there is virtually no potential to grow through aircraft movements. Similarly, there are limits to load factors (passengers per aircraft), and so growth depends on the number of seats per aircraft – a function of fleet mixes and aircraft seat configurations, both of which have displayed positive and negative historical trends in recent years. In addition, the unique characteristics of demand and operations at Heathrow have a significant bearing on the FBP. For example, the proportion of long-haul passengers in Heathrow’s overall mix is materially higher than at other competing European hub airports, as shown in Figure 1.2. This high proportion of long-haul traffic share, together with the operational complexity (due to operating much of the day at 99% of capacity) within a constrained environment, all drive up costs. Studies, to support the structure of aeronautical charges at Heathrow, have estimated that long-haul passengers are 40% more expensive to serve than short haul passengers. A very similar picture would emerge from an analysis of economy versus premium class passengers. Set against this, long-haul passengers and even more so premium class passengers, provide higher yields to airlines. Slot values show that Heathrow is a highly valued airport by its customers. 1 1 If airlines were not able to operate profitably from Heathrow, slot values would be zero. However, Deloitte has estimated the market value of a pair of Heathrow’s landing slots to be around £25-30 million – higher than those of either Frankfurt or Charles de Gaulle. See http://www.deloitte.com/view/en_gb/uk/969833d0303fb110VgnVCM100000ba42f00a RCRD.htm Page 6 Heathrow Q6 Full Business Plan - Public version | Chapter 1 © Heathrow Airport Limited 2013
1. Introduction and context Figure 1.1: Passenger numbers have fallen short of forecasts 80 78 76 74 Passengers 72 70 68 66 64 62 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Q4 settlement forecast Q5 settlement forecast Actual Figure 1.2: Percentage of long haul passengers at major European hub airports 60 50 % long haul passengers 40 30 20 10 0 Madrid Amsterdam Frankfurt Charles De Gaulle Heathrow © Heathrow Airport Limited 2013 Heathrow Q6 Full Business Plan - Public version | Chapter 1 Page 7
Page 1 and 2: Q6 Full business plan Public versio
Page 3 and 4: Executive summary Passenger experie
Page 5: Introduction and context Passengers
Page 9 and 10: 1. Introduction and context 1.7 Inv
Page 11 and 12: Our transformation to date Since 20
Page 13 and 14: 2. Our transformation to date 2.2 I
Page 15 and 16: © Heathrow Airport Limited 2013 He
Page 17 and 18: Our vision and priorities for Q6 Ou
Page 19 and 20: 3. Our vision and priorities for Q6
Page 21 and 22: 3. Our vision and priorities for Q6
Page 23 and 24: Our proposition for Q6 In this chap
Page 25 and 26: 4. Our proposition for Q6 Courteous
Page 27 and 28: 4. Our proposition for Q6 An end-to
Page 29 and 30: 4. Our proposition for Q6 Improve c
Page 31 and 32: 4. Our proposition for Q6 Focus on
Page 33 and 34: 4. Our proposition for Q6 Increase
Page 35 and 36: 4. Our proposition for Q6 Support r
Page 37 and 38: © Heathrow Airport Limited 2013 He
Page 39 and 40: Aeronautical charges This chapter o
Page 41 and 42: 5. Aeronautical charges Table 5.1:
Page 43 and 44: 5. Aeronautical charges 5.1.2. Oper
Page 45 and 46: 5. Aeronautical charges Notwithstan
Page 47 and 48: Dependencies and risks This chapter
Page 49 and 50: Box 6.1 Sustainable hub capacity gr
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Page 53 and 54: Conclusion This Full Business Plan
Page 55 and 56: Terminal 1 Departure lounge extensi

Q6 Full Business Plan - Heathrow Airport

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