Heathrow airport raises passenger forecast as travel demand surges

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London’s Heathrow airport has upgraded its passenger forecast for the year as summer demand surged more than expected, but warned of further risks to its recovery.

The UK’s biggest airport forecast that 54.4mn passengers, or 67 per cent of 2019 levels, would go through its terminals this year, up from the 52.8mn it predicted in April.

However, the airport warned that “significant downside risks remain”, as the cost of living crisis hits travellers’ finances and desire to go abroad. Meanwhile Covid-19 had the potential to return, while the war in Ukraine would also affect travel plans, the airport said in an investor report published on Thursday.

The latest figure allows for a resurgence in visitors from the US, Heathrow said. Since the airport’s previous passenger estimate, US travellers, which account historically for about 20 per cent of Heathrow’s total, no longer face taking a Covid test on their return, a ruling that was announced on June 10.

Heathrow pointed to a “steady traffic increase” for this year, saying 20.1mn passengers had travelled through the airport in the first five months. That surpassed the 2.9mn of 2021 when travel restrictions were in place for much of the year. May’s figures were the highest since the start of the pandemic.

Outbound leisure at weekends, school and public holidays has driven demand as a lack of Covid-induced restrictions allow people to travel more freely. Inbound leisure and business travel remains weak since many other countries maintain Covid rules.

Latin America, which is outperforming 2019, North America and Europe in particular helped push up numbers compared with last year.

The London airport expected its adjusted earnings before interest, tax, depreciation and amortisation to rise 257 per cent from 2021 to £1.37bn. Revenue is forecast to double to £2.6bn.

“However, the degree of uncertainty is still significant,” Heathrow said.

Inflation has begun to bite. Staffing and energy costs amount on average to 45 per cent of an airport’s operating costs, Airports Council International figures show. The UK on Wednesday reported 9.1 per cent inflation in May, a 40-year high.

Higher energy prices will drive up its operating costs by almost half to £1.2bn, Heathrow said on Thursday.

“There is no question but that the inflationary spiral we are now in is only making things worse,” said Olivier Jankovec, director-general of ACI Europe, when he opened its annual congress in Rome on Thursday. “Airports will simply not be able to pay back their debt and invest at the same time.”

European airports have cumulatively racked up more than €20bn of losses over the past two years and they “had no other option than to pile on debt”, Jankovec said. Total airport debt and liabilities have increased to €60bn compared with before the pandemic struck in March 2020.

“Restoring earnings to pre-pandemic levels will be challenging — and combined with debt servicing, there is no escaping the fact that airports are facing an investment crunch,” he said.

European airports need about €360bn in capital expenditure by 2040 but inflation has begun to affect their investment decisions, Jankovec added.

Heathrow’s chief executive warned this month that it would take up to 18 months for the aviation industry to return to pre-pandemic levels.

Airlines have cut flight schedules to cope with staff shortages as the summer demand has picked up. British Airways, which culled nearly 10,000 jobs during the pandemic, cut 10 per cent of its schedules between March and October.

Source: Financial Times

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