Heathrow forecasts summer pax surge, but VAT challenge for retail remains

By Charlotte Turner |

According to London Heathrow Airport’s annual results statement, retail revenue declined by 7.3% in 2021 (Jan-Dec), year-on-year, as a direct result of reduced passenger numbers. However, the airport operator reported ‘relative resilience’ in the final quarter of last year as the relaxation of Government restrictions allowed for the reopening of all commercial units across Terminals 2, 3 and 5 to take advantage of improved passenger numbers.

 

The airport revealed that Terminal 4 will reopen in July, while sharing that retail revenue per passenger had increased 5.8% to £11.19 (2020: £10.58) last year. For in-depth analysis on Heathrow’s latest retail news and developments, read this month’s cover interview with Fraser Brown, Heathrow Airport’s Retail Director.

 

It was highlighted by the airport in the results statement and confirmed by Brown in yesterday’s TFWA 365 webinar, that retail income is likely to be impacted by the government’s decision to abolish VAT free shopping from 1 January 2021.

 

“The decision will impact our pricing proposition and that of retailers and an example is the closure of Dixon’s Travel in H1 2021,” said LHR.

Click the cover to read our interview with Fraser Brown.

Click the cover to read/watch our interview with Fraser Brown in the February ezine.

INMOTION MOVES IN

“We were sad to see the demise of Dixons Travel; we had a long-standing relationship with them,” Fraser Brown, Retail Director at Heathrow Airport told TRBusiness in an exclusive onsite interview.

 

“They had eight units at Heathrow, but we are going to see over the next few months those units re-emerge with InMotion and reinvigorated with some great new concepts. I know from the rigorous tender work my team did that we’ve got a really strong offer for passengers here.”

 

As reported, on 17 February LHR opened its InMotion store at Terminal 3, the first in a series of main shops from the airport-based electronics retailer due to unveil across the airport’s terminals.

 

Last month, in a trade media exclusive, TRBusiness was able to reveal impressions of the new InMotion units at Heathrow Airport Terminal 2.

 

As LHR sees passenger volumes return during 2022, the impact of the UK Government’s decision to remove the sale tax benefit will become more apparent, said the airport.

 

RECORD-LOW PASSENGER NUMBERS

Last year passenger numbers fell to 19.4m; the lowest on record since 1972 with Heathrow being the only European hub to see a reduction in traffic in 2021, ‘due to tighter travel restrictions than EU countries’, explained LHR.

 

Passenger numbers are currently 23% behind forecast, but a ‘strong summer for outbound tourism’ has been predicted.

 

Despite lower than expected passenger numbers in January and February, LHR says it is expecting a surge of Brits heading for summer sun and is working with its airline partners to ramp up operations to ensure they have a great experience at Heathrow, including reopening Terminal 4 by July.

 

“We expect to meet our 2022 target of 45.5m passengers,” it added.

As reported, on 17 February LHR opened its InMotion store at Terminal 3, the first in a series of main shops from the airport-based electronics retailer due to unveil across the airport’s terminals.

On 17 February LHR opened its InMotion store at Terminal 3, the first in a series of main shops from the airport-based electronics retailer due to unveil across the airport’s terminals.

TESTING RESTRICTIONS OVERSEAS STILL BITE

Inbound tourism and business travel remain key challenges, but removing testing restrictions in the UK has boosted outbound tourism demand. Inbound tourism and business travel remain suppressed due to testing in other countries; 63% of LHR’s markets retain some form of travel restriction or testing requirements, and government responses to Omicron show how uncertain broader travel demand remains.

 

“We don’t expect travel to return to pre-pandemic levels until all restrictions have been removed, passengers can travel with no checks and are confident they will not be reimposed,” added Heathrow.

 

Meanwhile, LHR’s plans for net zero aviation by 2050 remain ‘on track’ and it insists it is making good progress on decarbonising aviation, tackling noise, and providing skilled careers for local people.

 

“We have set more ambitious targets in our updated Heathrow 2.0 plan for sustainable growth,” added LHR.

 

“We are proud that all of our supply chain will now be on London Living Wage by the beginning of April, and that other employers at the airport are following suit.”

 

LHR highlights that the pandemic has strengthened Heathrow’s case for expansion and that while it has paused work to expand Heathrow during COVID-19, the crisis has shown the pent-up demand from airlines to fly from Heathrow, as well as how critical Heathrow is for UK’s trade routes. Heathrow said it will review plans for expansion over the course of the next year.

 

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