Inside the revolution at ‘incompetent’ Heathrow
The arrival of VIR100 at JFK from Heathrow in late November was billed as an aviation milestone. Decked out in the familiar red and white livery of Virgin Atlantic and carrying a certain bearded billionaire, it was the first commercial flight fuelled by a “sustainable” blend of cooking oil and animal fats.
Among the passengers that partied with Sir Richard Branson that evening at Virgin’s Manhattan hotel in the shadow of the Empire State Building, was Thomas Woldbye, the new boss of Heathrow Airport.
The 59-year-old, fresh from 12 years in charge of Copenhagen Airport, happily mingled with air crew and a gaggle of backbenchers who came along for the ride, but he would have been forgiven for being distracted by events unfolding 3,500 miles away back home.
As the canapes piled up, news reached the Dane that Heathrow’s biggest shareholder, Spanish construction giant Ferrovial, had sold its 25pc stake to an arm of the Saudi state and a French private equity house.
Woldbye sought to play down any suggestion that the £2.4bn deal was a distraction. “As a management team, we focus on providing the best airport for our shareholders. All the negotiations that are going on are for our shareholders,” he said in an interview with The Telegraph.
Yet its significance to Heathrow’s future can hardly be overstated. Ferrovial’s planned exit has provided an opportunity for other shareholders such as Canadian pension fund CDPQ and GIC, Singapore’s sovereign wealth fund, to make their escape, too. Their “tag-along” rights allow them to find a buyer for their pieces of Heathrow at the same price.
With as much as 60pc of Heathrow likely to change hands, the gateway to Britain is on track to wave goodbye to its most turbulent times as it bids farewell to one set of owners and welcomes another. A delayed revolution is finally coming in to land, many hope.
‘Cash cow’
Critics accuse successive governments of wrongly allowing this country’s biggest airport to become a cash cow to be milked by overseas shareholders at the expense of much-needed investment. They helped themselves to £4bn of dividends before the pandemic, and even a £106m payment during the downturn.
Starved of capital and laden with billions of pounds of debt that has helped to finance generous payouts to its owners, for some passengers and airlines Heathrow has become a tired, overcrowded airport more synonymous with delays and queues than world-class travel. Plans for a third runway at Heathrow that would dramatically boost capacity have become a withered symbol of the malaise.
The weight of Heathrow’s borrowings was laid out in its latest financial results as it swung to a pre-tax profit of £38m in 2023 from a £684m loss the previous year. The airport forked out £1.5bn in interest payments as its debt pile climbed from £15.8bn to £16.8bn.
As it has lurched from one major crisis to another, the former London Airport has tumbled down the global rankings from the second busiest hub at the turn of the century behind Atlanta’s Hartsfield-Jackson to eighth place, behind Dubai, Paris, and Istanbul.
Some have questioned whether Heathrow’s demise is emblematic of inexorable national decline. More hopeful players believe the arrival of new shareholders led by Saudi Arabia’s ambitious ruler Crown Prince Mohammed bin Salman, together with the appointment of Woldbye, could herald a renaissance that restores some of Heathrow’s – and so the UK’s – prestige.
“Do we want to let Heathrow’s competitiveness slip away or are we going to find a way to hold on to it?” aviation consultant John Strickland asks.
It is a question that Sir Keir Starmer will find himself grappling with if he gets the keys to Number 10.
Staff revolt
In the coming weeks, hundreds of workers at Heathrow are due to walk out, causing serious disruption to getaways and business trips.
More than 600 Border Force officers are threatening to hit the picket line over the school holidays, potentially scuppering the Easter holiday plans of tens of thousands of families. Officers have been balloted in a dispute over shift patterns and working conditions.
Meanwhile, a separate dispute over a proposal to outsource the airport’s security to third-party contractors could lead to yet further damaging strikes that hit the summer schedule. The cost-cutting plans form part of Woldbye’s bid to identify £400m of savings.
Union chiefs at Unite, who are spearheading the revolt, have criticised the airport for “choosing to attack workers out of sheer greed”.
“The only ones to benefit will be Heathrow’s already immensely wealthy owners”, Unite told The Telegraph last month.
Woldbye insists that there is a pressing need to plug a funding gap caused by a reduction in the charges it can impose on the airlines that fly in and out of Heathrow multiple times a day. Management can ill afford yet another bout of bad publicity if they are to restore Heathrow’s reputation.
In 2008, Terminal 5 opened. Some 20 years in the planning, costing £4.3bn and designed to handle 35m passengers a year, the shiny building was supposed to herald a bold new era but it descended into chaos on its opening day after the baggage system collapsed. “Heathrow Hassle” was born.
The airport returned to front pages after the pandemic, when holidaymakers were repeatedly met with chaotic scenes. The post-Covid rebound in international travel should have been a moment to savour as millions of consumers responded to the lifting of restrictions by blowing their lockdown savings on holidays.
Yet without plans in place to cope, airports quickly buckled. Travellers were greeted by staff shortages, delays, cancellations, and queues snaking out of the departure hall. At Heathrow, luggage problems reached farcical levels. Some were asked to drop bags off the day before a flight. At one stage, a meltdown in Heathrow’s handling system left luggage piled up around the airport. Pilots were seen helping to load and unload suitcases.
Airlines’ frustration with Heathrow boiled over when it announced a cap on passengers and asked them to stop selling tickets. Emirates blasted the airport’s “incompetence”, accusing it of choosing “not to act, not to plan, not invest”, and refusing to cut passenger numbers.
Ex-British Airways boss and now head of the International Air Transport Association (Iata) Willie Walsh, claimed Heathrow was trying to “maximise the profitability that they get from the airport at the expense of airlines”.
The airport’s then-boss John Holland-Kaye dismissed the backlash as “bizarre”, arguing that much of the disruption was due to a dearth of ground-handling staff, which the airlines were responsible for providing.
An attempt by Heathrow to ramp up charges infuriated the airline industry even further, triggering a bitter war of words and shining a fresh spotlight on its owners.
Luis Gallego, chief executive at BA parent International Airlines Group, claimed that Heathrow already charged three times more per passenger than other major airports in Europe including Gatwick and Madrid, and five times more than Dublin, and accused it of prioritising investor payouts over service.
“High charges, designed to reward shareholders at the expense of customers, risk undermining its competitiveness,” Gallego said. After a long battle, the Civil Aviation Authority last year ordered Heathrow to cut its charges by 20pc to £25.43 per passenger. The airport had pushed for an increase to £40.
Rivals leave Heathrow behind
The contrast with rival hub airports couldn’t be more stark. Dubai has been nicknamed “a great airport and airline with a city attached” – and with good reason. Dubai’s location at the crossroads of Europe, Asia, and Africa has benefitted it hugely, enabling the rulers of the United Arab Emirates to bill it as a gateway for global trade and a magnet for airlines.
But without the spectacular success of national flag carrier Emirates, and the construction of an airport that can cope with 90m passengers a year, the transformation of Dubai from a small fishing village to a bustling desert metropolis would have been impossible.
As the likes of Dubai airport have flourished, Heathrow has waned – something the former heads of the Airport Commission, Sir Howard Davies and Sir John Armitt, warned would happen in 2018 when the pair wrote to MPs urging them to vote in favour of a proposal to expand Heathrow.
Its “strong links to established and emerging markets across the world... and the position it allows the UK to occupy at the heart of the global transport network are extremely valuable: supporting trade in goods and services, connecting friends and families, and enabling British companies, universities and other institutions to develop and maintain strong global networks”, they said.
However, “the continuation of this success cannot be taken for granted, and the rise of Dubai is only one indicator of the risks that the UK faces”, Davies and Armitt said.
“The problem for Heathrow is that you need to be able to keep growing. And if you can’t keep growing then you can’t change and evolve very easily. So what has been happening is that transit traffic has been diminishing, going to other airports that have more capacity – increasingly in the Middle East,” Alex Paterson, analyst at the City broker Peel Hunt, says.
Heathrow’s saviour may lie over Dubai’s western border in Saudi Arabia. Mohammed bin Salman hopes to emulate the success of his UAE neighbour, as well as that of the region’s other major players Abu Dhabi’s Etihad, and Qatar Airways, with plans for its own truly international airline, Riyadh Air.
Aviation has been designated a key plank of the kingdom’s “Vision 2030”, a scheme of vast scale and ambition to make its economy less reliant on oil by turning Saudi Arabia into a magnet for tourism.
It has placed an order for 78 Boeing 787 Dreamliners – valued by the White House at $37bn – that will become the fleet for Riyadh Air. Even larger sums are likely to be spent building a new airport in the capital that will accommodate 120m passengers by 2030.
Sway over Heathrow and its links to the US may be part of the global ambition.
“I would have thought that the Saudis, given there are such close links with the UK, will see Heathrow as another prime gateway to the West. It’s another bit of Saudi prestige in terms of their influence around the world,” Strickland says.
“Heathrow will inevitably be part of the plan, they [Saudi Arabia] will clearly be involved in the strategic direction of the group, and they will want to own slots at Heathrow in order to grow connectivity from the UK to Saudi Arabia,” Paterson says.
Others remain convinced that the answer to Heathrow’s struggles still lies with a third runway.
Third runway
At the turn of the millennium, the Department for Transport published some jaw-dropping figures: the number of airline passengers coming to Britain would jump from 160m a year to more than 400m by 2020.
With the majority of these new passengers projected to pass through airports in the South East of England, the prediction triggered a national debate about the best way to increase capacity.
By 2003, then-transport secretary Alistair Darling had published plans for a third runway and sixth terminal at Heathrow, along with permission for new runways at Stansted, Birmingham and Edinburgh. “It’s essential that we plan ahead to meet the pressures we know we’ll face as a result of a growing economy,” Darling told MPs.
After a decade of flip-flopping and fierce rows under Labour and then the Coalition, George Osborne established an independent Airports Commission in 2012 to try and build cross-party support for the controversial move.
Chaired by Sir Howard Davies and reporting to the Department for Transport, it unanimously voted in favour of a new northwest runway at Heathrow in 2015. The move was finally given the green light in 2018, with MPs voting 415 to 119 in favour.
Almost six years later and not a single grain of earth has been cleared to make way for the 3.5km runway and accompanying taxiways that form the centrepiece of a £14bn plan the airport laid out shortly after it was approved.
Though opposition from locals and environmental campaigners remains fierce, the airport and its shareholders must decide whether to press ahead.
Tory MP and former aviation minister Sir Robert Goodwill describes it as “a no-brainer”. “The issue at Heathrow is that there’s no spare capacity. They are chocker. I think it’s vitally important for UK plc that we increase capacity. As aviation becomes more sustainable, there’s no reason why it can’t expand.”
Business figures from across industries want to see Heathrow flourish.
“It’s hard to overstate the importance of Heathrow, in practical and reputational terms, especially to business users. Heathrow, Dover and the internet are the main international gateways for business,” former GlaxoSmithKline and Sainsbury’s chairman Sir Philip Hampton says.
“If our economy is to grow then we must export more. Businesses from Cornish tea growers to Scottish biscuit makers use it as a hub to access markets across the world,” Shevaun Haviland, director general of the British Chambers of Commerce, says.
Sir Howard believes the case for a third runway is still strong. “I remain of the view that if you want to expand long-haul airport capacity in the London region then Heathrow remains the best answer. An enormous amount of high value goods go out of Heathrow, and the infrastructure – the industrial parks and logistics centres – around it is absolutely massive.
“Reconstructing that somewhere else is just unimaginable in my view. That’s easy to overlook but it’s very significant.”
Unfavourable comparisons with other countries are unavoidable for the business elite. Advertising chief Sir Martin Sorrell travels through Heathrow roughly once a week. Airports in Singapore and Dubai feel much slicker, he says.
While those in more modern cities stand as a symbol of their rise and growing influence, Heathrow is in danger of being seen as emblematic of Britain’s diminishing global status.
When Holland-Kaye said he envisaged Heathrow “kickstarting” Brexit Britain after Covid restrictions had been removed, IAG’s Gallego quipped that the airport was more likely to “thwart” it.
Heathrow could also be seen as a microcosm of so much that is wrong with the country today. Sir Martin, who runs digital advertising agency S4 Capital, returned from a trip to Milan struck by the airport’s advanced security screening machines that mean passengers aren’t required to take anything out of their hand luggage.
Heathrow has been slow to invest in the same sort of technology, he points out. “It represents the image we have of the UK – insufficient investment and productivity,” he adds.
Others just want to see decisive action. “Air travel is key to bolstering connectivity, which is so vital for our economy. Future plans – whether they be expanding the number of runways or finding new ways to use existing airport assets – need to be ambitious and demonstrate the UK is open for business,” Martin McTague, National Chair at the Federation of Small Businesses, says.
Virgin Atlantic boss Shai Weiss has said Heathrow needs “massive renovation and new thinking around its business model”.
Tired of operating out of Terminal 3, which is 70 years old, he has floated the idea of buying into Terminal 2 – the 10-year-old “Queen’s Terminal” – with other airlines as a way to foster competition.
But Heathrow finance director Javier Echave is not a fan. The model has been tried in the US and has been “a complete failure – it’s becoming more expensive and the customer service is worse,” he says.
Frustration that Heathrow is limiting growth extends beyond individual airlines and into the broader economy. Ultimately, as a regulated monopoly, Heathrow’s future direction also depends on the Government.
Rupert Soames, chairman of the CBI, says: “With the UK in a global race for investment, enhancing the UK’s connectivity capacity can play a key role in seizing those opportunities. Ultimately, whoever wins the upcoming general election will have to make boosting the UK’s infrastructure a key focus for putting the economy on a pathway to sustainable growth.”
Labour’s four tests
As campaigners gathered outside the Royal Courts of Justice to hear an appeal ruling on Heathrow’s expansion four years ago, there was one voice journalists clamoured to hear.
Dressed in a black overcoat with his hands clasped in front of him, Sadiq Khan reflected on his bid to halt the project on grounds that ministers had failed to consider whether it was compatible with Britain’s net zero targets.
“I’m delighted,” the Mayor of London told them. “We brought this case because we thought a new runway at Heathrow had serious consequences on climate change, on air quality, on noise pollution, on the road and rail network, and on the quality of life for Londoners.
“This landmark judgment is probably the most important environmental case in a generation.”
At the time, Khan was keen to make political hay at the expense of his Conservative predecessor, Boris Johnson.
The ruling was eventually overturned by the Supreme Court, yet the views of Labour’s most senior elected politician may soon create a headache for Sir Keir, should the polls prove correct and the party romps to victory at the next general election.
Within Sir Keir’s inner circle, another voice likely to counsel against expansion is shadow energy secretary and climate warrior Ed Miliband.
Ahead of a parliamentary vote in 2018, Mr Miliband argued the scheme was inconsistent with the UK’s climate obligations and would lead to unacceptable air pollution.
There were “other, more limited ways” to meet the need for greater airport capacity elsewhere, he argued.
Yet Sir Keir will face equal pressure from Labour’s union backers in the other direction, with the GMB strongly supportive of expansion. The union has argued the project will create “many thousands of good, unionised jobs at Heathrow and in the wider supply chain” and is vital to supporting the wider aviation industry post-Covid.
At the moment, Labour has no official position on Heathrow expansion other than four vague “tests” dating back to the Corbyn era. These say the scheme must meet air quality, noise and climate change requirements, as well as having a strong economic case.
At the same time, Sir Keir and Rachel Reeves, the shadow chancellor, have also set out plans to help speed up the planning process for major construction projects.
Realistically, it is unlikely Heathrow’s expansion will meet Labour’s four tests, according to Ruth Cadbury, a Labour MP whose constituency borders Heathrow.
“Planes are already coming in at peak times every 60 seconds,” she says. “But the cheap and easy thing for them to do is to have more scheduled flights. When I talk about expansion, that’s what concerns me.
“We’re not fighting the third runway, we’re fighting the increase of that cap – which means more noise. It is the residents in the areas around Heathrow who will pay the price for that.”
Yet the whole of Britain has been paying the price of Heathrow’s shortcomings, which the airport acknowledges
A Heathrow spokesman said: “The UK has a direct connection to 95pc of the world’s economy because of Heathrow’s hub airport status. We are looking at how to unlock more short-term growth by making the current infrastructure as efficient as possible, but we’re getting close to our current capacity limits, which will in turn limit the country’s economic potential.
“That’s why we are actively reviewing our plans for longer-term growth as well, so Heathrow can continue to deliver for the UK economy, improve journeys for customers and meet our sustainability goals.”
Additional reporting by Matt Oliver and Lucy Burton