The entire aviation industry has been grappling with the Covid-19 pandemic for just over a year now – with a route back to normality still distantly lurking in the horizon. For the airport sector in particular, it’s been a challenging 14 months of regulation, uncertainty and massacred demand. Last week, I attended a Eurocontrol interview with Heathrow CEO John Holland-Kaye and found out more about the specific struggles faced by the UK’s hub airport.
With a 73% fall in passenger throughput from 2019 to 2020, Heathrow has seemed dormant and lifeless as of late. With this being said, the airport continues to operate with tens of thousands of staff on a daily basis. This exemplifies one of the core, unavoidable challenges faced by airports in the current climate: assets. Heathrow itself is composed of a huge amount of infrastructure, with £16 billion in assets which, regardless of passenger numbers, must be kept running safely and securely. This has led to an inability to reduce costs proportionally with passenger demand and Heathrow continues to lose up to £5 million every day.
After recent job cuts, pay cuts and contract renegotiations were reluctantly implemented to cut the airport’s cost base, a strong summer is crucial to it’s recovery. John Holland-Kaye expects governments to remain cautious, and for the return of international travel to be patchy – but he notes that governments must balance economic needs and health issues, and sees the UK government approaching a tipping point. The next step for international travel is likely to combine the government’s traffic light system (for categorising high, medium and low risk countries) with a system of Covid testing and vaccine certificates.
Scaling up air travel operations given the present situation brings with it a number of issues for airports. Immigration and Covid-19 regulations are causing an unprecedented bottleneck at the border – with some customers seeing queue times of up to six and a half hours. Even with low passenger rates, the border force simply don’t have enough resource to keep up with demand.
A scaled up operation would bring with it major issues if not addressed – and although Heathrow employ less than 10% of the staff actually working within the airport, the buck stops with them in terms of passenger satisfaction. They’re held accountable and blamed for issues like this – so it’s vital the government is held to account and notices the impact Covid regulations are having on the airport industry.
Another issue faced by Heathrow is the regulation surrounding slot allocation. Even with slot waivers, uncertainty is causing incumbent and inactive carriers to hold onto slots for lengthened periods – preventing new carriers from being able to enter the market and therefore cutting off a potential revenue stream for Heathrow – one which would prove so vital right now to minimise losses. Despite this, some carriers, such as JetBlue, have gained Heathrow slots – and it’ll be really interesting to see how their model performs at the London hub (more on this topic soon!).
Despite the many issues the airport faces, they still remain in a strong competitive position compared to other UK airports. Hub and spoke is the most viable option for long haul travel – and the slow implementation of vaccination programmes across Europe have meant that short haul routes are unlikely to provide the most sensible initial path back for international travel. All in all, Heathrow’s position as a premium hub airport means they have the versatility to flex towards diverse market opportunities – meaning no matter which market segment returns first, Heathrow will be ready and waiting to scale up.
Overall the outlook for aviation and Heathrow is very good. The next few years certainly will be bumpy – and it’s a testament to the management of the UK’s airports that they’ve got through the last year even with collapsed revenue and drained cash reserves. Covid-19 has brought with it challenges but also new opportunities and leaner operations across the industry. I’m grateful to John Holland-Kaye and Eurocontrol for the chance to learn more about Heathrow’s current situation – and I predict, if the government cooperates and collaborates, a strong recovery for the UK’s busiest airport.
With thanks to John Holland-Kaye, CEO of Heathrow Airport and Eurocontrol. View the full interview with John here.
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