Max Vialou Clark, Retail Concessions Director at Heathrow Airport, who recently stepped up to replace Muriel Zingraff, says that the Civil Aviation Authority’s decision to cut airport charges by RPI -1.5%, should not affect retail, despite Heathrow’s Chief Executive expressing his concern for the security of investment plans.

 

Speaking to TRBusiness last week, the new Concessions Director said: “We are not planning at the moment for it to affect retail. The job is to put together the products and necessary services, irrespective of the settlement.”

 

Back in January, London Heathrow Airport said that the CAA’s decision on its economic regulation includes aggressive operational, commercial and passenger forecasts.

 

The UK hub airport responded with strong words, to the Q6 price control decision made by the Civil Aviation Authority (CAA), cutting airport charges by RPI -1.5% from 2014-2019. This will see Heathrow’s per passenger airline charges fall in real terms from £20.71 in 2013/14 to £19.10 in 2018/19.

 

‘CUTTING OUR CLOTH’

“You’re quite right though; we’re going to have to cut our cloth in one way or another and that’s sort of an internal planning job,” adds Vialou-Clark. “We will do this steadily over a five-year period, and work with our shareholders to identify how much money they’re going to invest and for what projects.

 

[Left: Max Vialou Clark, Retail Concessions Director at Heathrow Airport.]

 

“One of the beauties of the retail part of the business is that we are there, of course, to make an economic return, but if we get it right we improve the passenger experience at the same time. There are good reasons why you’d invest in retail, but these things need to be taken in the total context of the business, and the amount of money that the shareholder is prepared to invest.”

 

LHR says the CAA’s final decision requires Heathrow to reduce operational expenditure by more than £600m, stretches commercial revenue targets by in excess of £100m, which includes revenues from retail and car park charges, and assumes significant passenger volume growth over Q6.

 

The CAA’s decision in April 2013 of RPI -1.3% was revised up to RPI +0% in October and has now been revised down again to RPI -1.5%. Heathrow had already described the October decision as the toughest price review it had faced.

 

‘INVESTMENT PLAN UNDER REVIEW’

At the time, Heathrow Chief Executive Colin Matthews said: “We are concerned by the degree of change since the CAA’s final proposals just a short while ago. In October the CAA accepted the need for changes to their April proposals, but has now reverted to a draconian position.”

 

[Right: Heathrow Chief Executive Colin Matthews.]

 

“We want to continue to improve Heathrow for passengers. We will review our investment plan to see whether it is still financeable in light of the CAA’s settlement.”

 

Heathrow’s rate of return on capital investment (or WACC), was set by the CAA at 5.35% in its initial proposal, increased to 5.6% in its October final proposal, and has now been reduced again to an unsustainable level of 5.35%.

 

“The settlement leaves little spare resource available to manage the consequences of potential disruption at Heathrow.”

 

[Above: A mock-up of how a new third runway would be positioned at London Heathrow Airport.]

 

THIRD RUNWAY?

Heathrow has invested £11 billion in the airport over the last ten years and passengers say they have noticed the difference. In 2013, Heathrow was named the best large airport in Europe and passengers voted Terminal 5 the ‘world’s best terminal’. This year the new £2.5bn Terminal 2 will open, continuing the transformation of Heathrow.

 

When asked how Heathrow expects to fund a potential third runway in the future, Vialou-Clark said: “Ok, I think the easiest answer to that is let’s take it one step at a time. Heathrow is engaging with the Davis Commission in exactly the way that you would expect it to.

 

“The point is, we don’t have a third runway, we have two, we will work within the environment we’ve got at the moment. A third runway, even if it was approved this afternoon, would take some years to get round to being built and there’s lots of water to flow under the bridge first, so let’s concentrate on doing the best job we can with the settlement we’ve got.”